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Archive for the ‘Big Government’ Category

My approach during the Trump years was very simple.

Other people, however, muted their views on policy because of their partisan or personal feelings about Trump.

I was very disappointed, for instance, that some Republicans abandoned (or at least downplayed) their support for free trade to accommodate Trump’s illiteracy on that issue.

But those people look like pillars of stability and principle compared to the folks who decided to completely switch their views.

Max Boot, for instance, is a former adviser on foreign policy to Republicans such as John McCain and Marco Rubio, who has decided that being anti-Trump means he should now act like a cheerleader for high taxes and big government.

Here’s some of what he wrote in a column for today’s Washington Post.

Republicans accuse President Biden of pursuing a radical agenda that will turn the United States into a failed socialist state. …It’s true that Biden is proposing a considerable amount of new spending… But those investments won’t turn us into North Korea, Cuba, Venezuela or the Soviet Union — all countries with government ownership of industry. …with proposals such as federally subsidized child care, elder care, family leave and pre-K education — financed with modest tax increases on corporations and wealthy individuals — Biden is merely moving us a bit closer to the kinds of government services that other wealthy, industrialized democracies already take for granted. …That’s far from radical. It’s simply sensible.

Part of the above excerpt makes sense. Biden is not proposing socialism, at least if we use the technical definition.

And he’s also correct that Biden isn’t trying to turn us into North Korea, Cuba, Venezuela, or the Soviet Union.

But he does think it’s good that Biden wants to copy Europe’s high-tax welfare states.

…by most indexes we are an embarrassing international laggard. …the United States spends nearly twice as much on health care as a percentage of gross domestic product than do other wealthy countries… The United States is also alone among OECD nations in not having universal paid family leave. …Our level of income inequality is now closer to that of developing countries in Africa and Latin American than to our European allies. …it’s possible to combine a vibrant free market with generous social welfare spending. In fact, that’s the right formula for a more satisfied and stable society. In the OECD quality-of-life rankings — which include everything from housing to work-life balance — the United States ranks an unimpressive 10th.

Mr. Boot seem to think that it’s bad news that the United States ranks 10th out of 37 nations in the OECD’s so-called Better Life Index.

I wonder if he understands, however, that this index has serious methodological flaws – such as countries getting better scores if they have bigger subsidies that encourage unemployment? Or countries getting better scores if they have high tax rates that discourage labor supply?

But the real problem is that Boot seems oblivious to most important data, which shows that Americans enjoy far more prosperity than Europeans.

And he could have learned that with a few more clicks on the OECD’s website. He could have found the data on average individual consumption and discovered the huge gap between U.S. prosperity and European mediocrity.

The obvious takeaway is that big government causes deadweight loss and hinders growth (as honest folks on the left have always acknowledged).

P.S. I can’t resist nit-picking four other points in Boot’s column.

  1. As show by this Chuck Asay cartoon, you don’t magically make government spending productive simply be calling it an “investment.”
  2. Like beauty, the interpretation of “modest” may be in the eye of the beholder, but it certainly seems like “massive” is a better description of Biden’s proposed tax hikes.
  3. It’s worth noting that Europe became a relatively prosperous part of the world before governments adopted punitive income taxes and created big welfare states.
  4. America’s excessive spending on health is caused by third-party payer, which is caused by excessive government intervention.

P.P.S. I’ve wondered whether the OECD (subsidized by American taxpayers!) deliberately used dodgy measures when compiling the Better Life Index in part because of a desire to make the U.S. look bad compared to the European welfare states that dominate the organization’s membership? That certainly seems to have been the case when the OECD put together a staggeringly dishonest measure of poverty that made the U.S. seem like it had more destitution than poor countries such as Greece, Portugal, and Turkey.

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There are all sorts of long-running battles in the economics profession, perhaps most notably the never-ending dispute about Keynesian economics.

Another contentious issues is the degree to which society should accept less growth in order to achieve more equality, with Arthur Okun – author of Equality and Efficiency: The Big Tradeoff – being the most famous advocate for prioritizing equity.

I don’t agree with Okun, but I applaud him for honesty. Unlike many modern politicians, as well as most international bureaucracies (and even the occasional journalist), he didn’t pretend that big government was a free lunch.

Let’s take a closer look at this issue in today’s column.

We’ll start by perusing a working paper, published by Spain’s central bank, that explores the optimal tax rate for that nation. The author, Dario Serrano-Puente, concludes that society will be better off if tax rates are increased.

Many modern governments implement a redistributive fiscal policy, where personal income is taxed at an increasingly higher rate, while transfers tend to target the poorest households.In Spain there is an intense debate about…so-called “fiscal justice”, which is putting on the table a tax rate increase for the high-income earners… once the theoretical framework is defined, a bunch of potential progressivity reforms are assessed… Then a Benthamite social planner, who takes into account all households in the economy by putting the same weight on each of them, discerns the optimal progressivity reform. The findings suggest that aggregate social welfare is maximized when the level of progressivity of the Spanish personal income tax is increased to some extent. More precisely,in the optimally reformed scenario (setting the optimal level of progressivity), welfare gains are equivalent to an average increase of 3.08% of consumption.

I have a fundamental problem with the notion of government acting as a “Benthamite social planner,” but I don’t want to address that issue today.

Instead, I want to applaud Senor Serrano-Puente because he openly acknowledges that higher tax rates and more redistribution will lead to less growth.

Here’s some of what he wrote about that tradeoff.

For each reformed economy evaluated in the progressivity gridτ={0.00, …,0.50}, the main macroeconomic aggregates are calculated. …the evolution of these magnitudes on progressivity is depicted in Figure 4. Broadly speaking, it is clear that aggregate capital and output are decreasing in progressivity in a (almost) linear pathway, with the drop in capital being more pronounced than in output. …aggregate consumption and aggregate labor are also decreasing in progressivity.

Here’s a look at the aforementioned Figure 4, and it is easy to see that the economy suffers as progressivity increases.

Kudos, again, to the author for acknowledging the tradeoff between equity and efficiency. But applauding the author for honesty is not the same as applauding the author’s judgement.

Simply stated, he is trying to justify a policy that will hurt poor people in the long run. That’s because even small differences in growth can have a big effect over time.

Let’s illustrate how this works with a chart showing the life-time earnings of a hypothetical low-income Spaniard.

  • The orange line shows how much money the workers gets if he starts with an extra 3.08 percent of income thanks to higher taxes and additional redistribution, but the economy grows 2.0 percent per year.
  • The blue line shows income for the same worker, which starts at a lower level because tax rates have not been increased to fund additional redistribution, but the economy grows 2.2 percent per year..

As you can see, that low-income worker is a net beneficiary of bigger government for about 10 years. But as time goes on, the worker would be far better off with smaller government and faster growth.

Different assumptions will lead to different results, of course. My goal is simply to help readers understand two things.

P.S. To illustrate the high cost of big government, let’s shift from hypothetical examples to real-world data. Most relevant, OECD data shows that the average low-income person in the United States is better off than the average middle-class person in Spain.

P.P.S. The study cited above considers what happens if Spanish politicians raise taxes on the rich. That would be a mistake, as illustrated by the chart, but let’s not forget that Spanish politicians also over-tax low-income people.

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We can learn a lot by looking at economic history.

It’s instructive to note, for instance, that the United States evolved from agricultural poverty to middle-class prosperity in the 1800s – during a time when the burden of government spending was trivially small.

Federal spending that century, on average, consumed less than 5 percent of the country’s economic output, meaning we had a public sector far smaller that what is found today in supposedly small-government jurisdictions such as Hong Kong and Singapore.

There’s a lesson to be gleaned from America’s rise to prosperity, in my humble opinion, as well as from similar experiences in Western Europe.

But not everybody sees history the same way. Earlier this month, David Brooks opined in the New York Times in favor of Biden’s spending binge.

Given his long-standing opposition to libertarianism/small-government conservatism, that’s not a big surprise. But what is noteworthy is that he argued Biden’s statism is part of the American tradition.

What is the quintessential American act? It is the leap of faith. …The early days of the Biden administration are nothing if not a daring leap. …What is this thing, Bidenomics? …democracy needs to remind the world that it, too, can solve big problems. Democracy needs to stand up and show that we are still the future. …Cecilia Rouse, the chair of Biden’s Council of Economic Advisers, …said…“the private sector…is not best suited to deliver certain public goods like work force training and infrastructure investment,” she told me. “These are places where there is market failure, which creates a role for government.” …Some people say this is like the New Deal. I’d say this is an updated, monster-size version of “the American System,” the 19th-century education and infrastructure investments inspired by Alexander Hamilton, championed by Henry Clay and then advanced by the early Republicans, like Abraham Lincoln. That was an unabashedly nationalist project, made by a youthful country, using an energetic government to secure two great goals: economic dynamism and national unity.

The column concludes that we have to make this leap to deal with a threat from China.

Sometimes you take a risk to shoot forward. The Chinese are convinced they own the future. It’s worth taking this shot to prove them wrong.

But Mr. Brooks is wrong. We’re not taking a daring leap into the unknown with Biden’s agenda.

We’re copying Western Europe.

And that means we have lots of data showing what that means for our future. Unfortunately, it means Americans will enjoy less income and suffer from lower living standards.

At the risk of understatement, that doesn’t seem like a good idea.

P.S. I also can’t resist pointing out that there are several small points in Brooks’ column that cry out for correction, such as the anti-empirical assertions that government job training is a good idea or that government intervention in the 1800s produced good results.

P.P.S. I’m also baffled that so many people view China as a successful economic model when living standards in that nation are only about one-fifth of American levels.

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There’s a growing controversy about whether the various coronavirus-lockdown rules should be relaxed for people who have been vaccinated (as opposed to being relaxed for hypocritical politicians).

And if those restrictions are relaxed, vaccinated people presumably will need some sort of proof, like a “vaccine passport.”

Many people understandably are hesitant about this concept, particularly if government is involved. After all, we have many examples of seemingly innocuous ideas becoming nightmarish mistakes (such as adopting the income tax).

And the last thing any of us would want (I hope!) is something that could devolve into an authoritarian, Chinese-style system for monitoring and controlling private life.

But what if government isn’t involved? What if private businesses decide that customers are only allowed if they prove they’ve been vaccinated?

From a libertarian perspective, guided by core principles such as property rights and freedom of association, that should be totally acceptable.

And that’s true even if we think the owners of the businesses are making silly choices. After all, it’s their property.

Some conservatives, however, either don’t understand libertarian principles or they’re willing to abandon those principles for political convenience.

For instance, Will Wilkinson observes that many Republicans are forgetting the libertarian principle of freedom of association.

Conservatives have been freaking out about the mere possibility of vaccine passports… The idea is that the ability to credibly prove vaccination status will speed the restoration of normal social and economic life. This works by allowing businesses, schools, sports leagues, etc. to discriminate against those who haven’t been vaccinated. …one of the bright lines dividing American liberals and conservatives concerns the limits of freedom of association. Conservatives, and especially those with a libertarian streak, are far more likely to be absolutists about the right to exclude anyone from your property, business, or private club or association for any reason. …If the Civil Rights Act is problematic because it infringes on freedom of association, the permissibility of discriminating against customers who might carry a fatal infection is a total no-brainer. Right? Ha! …there is no actual principle at work here. Conservatives are consistent only in their opportunistic incoherence.

Moreover, in his column for the Atlantic, David Frum notes that the GOP is hypocritically abandoning its support for property rights.

Whether vaccine passports ever will exist remains highly uncertain. A lot of questions remain about the technology required—and about whether the concept makes any business sense. …For now, then, the discussion about vaccine passports remains theoretical—which makes the discussion all the more impassioned and embittered. DeSantis and others are loudly advertising that with COVID-19, …their version of freedom puts greater priority on right-wing cultural folkways than on rights of property and ownership. …To appease those cultural blocs, Republican politicians must be willing to sacrifice everything, including what used to be the party’s foundational principles. …to avoid contradicting the delusions of anti-vaccine paranoiacs, property rights must give way, freedom to operate a business must yield. …with COVID-19, …the new post-Trump message from the post-Trump GOP is: Private property is socialism; state expropriation is freedom. It’s a strange doctrine for a party supposedly committed to liberty and the Constitution, but here we are.

I think it’s fair to say that neither Wilkinson nor Frum are libertarians, or even conservatives, but I also think they are correct in pointing out that there is a lot of hypocrisy and incoherence.

That being said, I am glad that there’s lots of resistance to the idea of vaccine passports. Why? Because if businesses impose such rules and there’s no pushback, that probably increases the likelihood that politicians will try something similar.

And that’s where libertarians should be drawing the line, as Professor Don Boudreaux has noted.

After all, if a business does something we don’t like, we are free to patronize competitors. But if government does something we don’t like, there’s the horrible choice of obey or go to jail (or get a fake passport on the black market).

For what it’s worth, I hope this becomes a moot point. After all, once everybody who wants to get vaccinated has been vaccinated, there’s no plausible argument for maintaining any more restrictions on normal life.

P.S. But if it does become a real issue, it will probably generate new jokes, cartoons, and memes, all of which will require me to expand my collection of coronavirus-themed humor.

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The International Monetary Fund’s dogmatic support for higher taxes and bigger government makes it “the dumpster fire of the global economy.”

Wherever IMF bureaucrats go, it seems they push for high-tax policies that will weaken growth.

Call me crazy, but I’m baffled that the IMF seems to think nations will grow faster and be more prosperous if politicians seize more money from the economy’s productive sector.

Unfortunately, the IMF has been especially active in recent months..

In a column for the U.K.-based Guardian, Larry Elliott writes about the IMF using the pandemic as an excuse to push for higher taxes.

…the IMF called for domestic and international tax changes that would boost the money available to expand public services, make welfare states more generous… “To help meet pandemic-related financing needs, policymakers could consider a temporary Covid-19 recovery contribution, levied on high incomes or wealth,” the fiscal monitor said. …Paolo Mauro, the deputy director of the IMF’s fiscal affairs department, said there had been an “erosion” of the taxes paid by those at the top of the income scale, with the pandemic offering a chance to claw some of the money back. “Governments could consider higher taxes on property, capital gains and inheritance,” he said. “One specific option would be a Covid-19 recovery contribution – a surcharge on personal tax or corporate income tax.”

Mr. Mauro, like most IMF bureaucrats, is at “the top of the income scale,” but he doesn’t have to worry that he’ll be adversely impact if politicians seek to “claw some of the money back.”

Why? Because IMF officials get tax-free salaries (just like their counterparts at other international bureaucracies).

Writing for the IMF’s blog, Mr. Mauro is joined by David Amaglobeli and Vitor Gaspar in supporting higher taxes on other people.

Breaking the cycle of inequality requires both predistributive and redistributive policies. …The COVID-19 crisis has demonstrated the vital importance of a good social safety net that can be quickly activated to provide lifelines to struggling families. …Enhancing access to basic public services will require additional resources, which can be mobilized, depending on country circumstances, by strengthening overall tax capacity. Many countries could rely more on property and inheritance taxes.  Countries could also raise tax progressivity as some governments have room to increase top marginal personal income tax rates… Moreover, governments could consider levying temporary COVID-19 recovery contributions as supplements to personal income taxes for high-income households.

Needless to say, the IMF is way off base in fixating on inequality instead of trying to reduce poverty.

Meanwhile, Brian Cheung reports for Yahoo Finance about the IMF’s cheerleading for a global tax cartel.

The International Monetary Fund (IMF) says it backs a U.S. proposal for a global minimum corporate tax. IMF Chief Economist Gita Gopinath said that the fund has been calling for international cooperation on tax policy “for a long time,” adding that different corporate tax rates around the world have fueled tax shifting and avoidance. “That reduces the revenues that governments collect to do the needed social and economic spending,” Gopinath told Yahoo Finance Tuesday. “We’re very much in support of having this kind of global minimum corporate tax.” …Gopinath also backed Yellen’s push forward on an aggressive infrastructure bill… As the IMF continues to encourage countries with fiscal room to continue spending through the recovery, its chief economist said investment into infrastructure is one way to boost economic activity.

Based on the above stories we can put together a list of the tax increases embraced by the IMF, all justified by what I call “fairy dust” economics.

  • Higher income tax rates.
  • Higher property taxes.
  • More double taxation of saving/investment.
  • Higher death taxes.
  • Wealth taxes.
  • Global tax cartel.
  • Higher consumption taxes.

And don’t forget the IMF is a long-time supporter of big energy taxes.

All supported by bureaucrats who are exempt from paying tax on their own very-comfortable salaries.

P.S. I feel sorry for two groups of people. First, I have great sympathy for taxpayers in nations that follow the IMF’s poisonous advice. Second, I feel sorry for the economists and other professionals at the IMF (who often produce highquality research). They must wince with embarrassment every time garbage recommendations are issued by the political types in charge of the bureaucracy.

P.P.S. But since they’re actually competent, they will easily find new work if we shut down the IMF to protect the world economy.

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I get asked why I frequently criticize Republicans.

My response is easy. I care about results rather than rhetoric. And while GOP politicians often pay lip service to the principles of limited government, they usually increase spending even faster than Democrats.

Indeed, Republicans are even worse than Democrats when measuring the growth of domestic spending!

This is bad news because it means the burden of government expands when Republicans are in charge.

And, as Gary Abernathy points out in a column for the Washington Post, Republicans then don’t have the moral authority to complain when Democrats engage in spending binges.

President Biden is proposing another $3 trillion in spending… There are objections, but none that can be taken seriously. …Republicans had lost their standing as the party of fiscal responsibility when most of them succumbed to the political virus of covid fever and rubber-stamped around $4 trillion in “covid relief,”… With Trump out and Biden in, Republicans suddenly pretended that their 2020 spending spree happened in some alternate universe. But the GOP’s united opposition to Biden’s $1.9 trillion package won’t wash off the stench of the hypocrisy. …I noted a year ago that we had crossed the Rubicon, that our longtime flirtation with socialism had become a permanent relationship. Congratulations, Bernie Sanders. The GOP won’t become irrelevant because of its association with Trump, as some predict. It will diminish because it is bizarrely opposing now that which it helped make palatable just last year. Fiscal responsibility is dead, and Republicans helped bury it. Put the shovels away, there’s no digging it up now.

For what it’s worth, I hope genuine fiscal responsibility isn’t dead.

Maybe it’s been hibernating ever since Reagan left office (like Pepperidge Farm, I’m old enough to remember those wonderful years).

Subsequent Republican presidents liked to copy Reagan’s rhetoric, but they definitely didn’t copy his policies.

  • Spending restraint was hibernating during the presidency of George H.W. Bush.
  • Spending restraint also was hibernating during the presidency of George W. Bush.
  • And spending restraint was hibernating during the presidency of Donald Trump.

I’m not the only one to notice GOP hypocrisy.

Here are some excerpts from a 2019 column in the Washington Post by Fareed Zakaria.

In what Republicans used to call the core of their agenda — limited government — Trump has been profoundly unconservative. …Trump has now added more than $88 billion in taxes in the form of tariffs, according to the right-leaning Tax Foundation. (Despite what the president says, tariffs are taxes on foreign goods paid by U.S. consumers.) This has had the effect of reducing gross domestic product and denting the wages of Americans. …For decades, conservatives including Margaret Thatcher and Ronald Reagan preached to the world the virtues of free trade. But perhaps even more, they believed in the idea that governments should not pick winners and losers in the economy… Yet the Trump administration…behaved like a Central Planning Agency, granting exemptions on tariffs to favored companies and industries, while refusing them to others. …In true Soviet style, lobbyists, lawyers and corporate executives now line up to petition government officials for these treasured waivers, which are granted in an opaque process… On the core issue that used to define the GOP — economics — the party’s agenda today is state planning and crony capitalism.

Zakaria is right about Republicans going along with most of Trump’s bad policies (as illustrated by this cartoon strip).*

The bottom line is that Republicans would be much more effective arguing against Biden’s spending orgy had they also argued for spending restraint when Trump was in the White House.

P.S. It will be interesting to see what happens in the near future. Will the GOP be a small-government Reagan party or a big-government Trump party?

Or maybe it will go back to being a Nixon-type party, which would mean bigger government but without mean tweets. And there are plenty of options.

If they make the wrong choice (anything other than Reaganism), Margaret Thatcher has already warned us about the consequences.

*To be fair, Republicans also went along with Trump’s good policies. It’s just unfortunate that spending restraint wasn’t one of them.

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I’ve authored a five-part series about coronavirus and the failure of big government (hereherehere, here, and here), as well as columns specifically highlighting the failures of the FDA, CDC, and WHO bureaucracies.

Today, let’s look at how free enterprise came to the rescue when government barriers were reduced. Starting with this video.

To elaborate on this message, millions of lives are now being saved because pharmaceutical companies have produced multiple vaccines.

I even got my first shot yesterday before leaving town for a softball tournament.

Will this save my life? I like to think I’m reasonably healthy and would have survived if I caught the virus, but I’m very happy to now put that possibility in the rear-view mirror.

So I’m feeling very happy that I live in a nation where private companies, in their pursuit of profits, have had a big incentive to produce vaccines.

Yes, I realize the government dumped a bunch of taxpayer money into vaccine production, so I don’t want to pretend Uncle Sam played no role. But I also have great faith that the profit motive would have led to vaccines being developed regardless.

And we would have had the vaccines even sooner if the FDA was even better about getting out of the way.

Allysia Finley celebrated capitalism’s key role in a recent column for the Wall Street Journal. Here’s some of what she wrote about the decades of research and investment that enabled pharmaceutical companies to deliver miracles for humanity.

Large corporations are political villains, derided on the left and right. Yet the main, and perhaps only, reason the Covid-19 scourge is easing is vaccines developed by Big Pharma. …There are…lessons for those who think capitalism is merely about rapacious profit. “We would never be in the position where we are today if we had not invested billions of dollars over decades so that we could respond,” Mr. Gorsky, 60, says in an interview… J&J’s vaccine is the third to obtain FDA approval, but preliminary results from trials on AstraZeneca and Novavax suggest they are also highly effective. All these Covid-19 vaccines use innovative technologies that have been developed and tested over decades on other diseases. …The Pfizer-BioNTech and Moderna vaccines inject the virus’s genetic code via mRNA… It seems like an incredible stroke of luck and science that we have so many Covid-19 vaccines so soon. But it’s more than that. Credit years of research and investment by drug makers… “I think this is a golden moment, not only for Johnson & Johnson, but the biopharmaceutical industry,” he says. “We fundamentally believe that having a market-based, innovation-based, biopharmaceutical as well as a medical-technology environment, is critical long term to produce the best overall outcomes for healthcare.”

There are a couple of big lessons for today.

The first lesson, as shown in the video, is that we can save lives by permanently reducing bureaucratic red tape at bureaucracies such as the Food and Drug Administration.

The second lesson is that we should celebrate the profit motive. The desire to make a buck is what drives companies to produce goods and services that make our lives better.

And one takeaway of that second lesson is that we should reject short-sighted policies such as European-style price controls on drug companies. Such an approach would undermine our ability to deal with future pandemics and also reduce the likelihood of new and improved treatments for things such as cancer, dementia, and heart disease.

P.S. I like pharmaceutical companies when they are being honest participants in a free market. I don’t like them when they get in bed with big government.

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I’ve been warning that the United States should not copy Europe’s fiscal policy, largely because living standards are significantly lower in nations with large welfare states.

That’s true if you look at average levels of consumption in different nations, but the most compelling data is the fact that lower-income people in the United States generally enjoy living standards that are equal to or even higher than those for middle-class people in most European countries.

A bigger burden of government is not just a theoretical concern. President Biden has already pushed through a $1.9 trillion spending bill that includes some temporary provisions – such as per-child handouts – that, if made permanent, could add several trillion dollars to the burden of government spending.

And the White House has signaled support for $3 trillion of additional spending for items such as infrastructure, green energy, and other boondoggles.

This doesn’t even count the cost of other schemes, such as the “public option” that would strangle private health insurance and force more people to rely on an already-costly-and-and bankrupt government program.

So what will it mean for America if our medium-sized welfare state morphs into a European-style large welfare state?

The answer to that question is rather unpleasant, at least if some new research from the Congressional Budget Office is any indication. The study, authored by Jaeger Nelson and Kerk Phillips, considers the impact on growth based on six different scenarios (based on how much the spending burden increases and what taxes are increased).

If permanent spending is financed by new or increased taxes, then those taxes influence people’s decisions about how much to work and save. Those decisions then affect how much the economy produces and businesses invest and, ultimately, how much people can consume. Different types of taxes have different economic effects. Taxes on labor income reduce after-tax wages, so they reduce the return on each additional hour worked. …Higher taxes on capital income, such as dividends and capital gains, lower the average after-tax rate of return on private wealth holdings (or the return on investment), which reduces the incentive to save and invest and leads to reductions in saving, investment, and the capital stock. …we compare the effects of raising additional revenues through three illustrative tax policies: a flat tax on labor income, a flat tax on all income (including both labor and capital income), and a progressive tax on all income. The additional revenues generated by these policies are in addition to the revenues raised by taxes that already exist and are used to finance two specific increases in government spending. The two increases in government spending are set to 5 percent and 10 percent of GDP in 2020.

Here are some of the key results, as illustrated by the chart.

The least-worst result (the blue line) is a decline in GDP of about 3 percent, and that happens if the spending burden expand by 5-percentage points of GDP and is financed by a flat tax.

The worst-worst result (dashed red line) is a staggering decline in GDP of about 10 percent, and that happens if the spending burden climbs by 10-percentage points and is financed by a progressive tax.

Here’s some additional analysis, including a description of why progressive taxes impose the most damage.

This paper shows that flat labor and flat income tax policies have similar effects on output; labor taxes reduce the labor supply more, and income taxes reduce the capital stock more. For all three policies, the decline in income contracts the tax base considerably over time. As a result, to continuously generate enough revenues to finance the increase in government spending in each year, tax rates must steadily increase over time to account for the decline in the tax base. Moreover, labor and capital taxes put upward pressure on interest rates by reducing the capital-to-labor ratio over time… The largest declines in economic activity among the financing methods considered occur with the progressive tax on all income. Those declines occur because high-productivity workers reduce their hours worked and because higher taxes on asset income reduce the incentive to save and invest relatively more than under the two flat taxes.

There’s lots of additional information in the study, but I definitely want to draw attention to Table 4 because it shows that lower-income people will suffer big reductions in living standards if there’s an increase in the burden of government spending (circled in red).

What makes these results especially remarkable is that the authors only look at the damage caused by higher taxes.

Yet we know from other research that the economy also will suffer because of the higher spending burden. This is because of the various ways that growth is reduced when resources are diverted from the productive sector to the government.

For background, here’s a video on the theoretical reasons why government spending hinders growth.

And here’s a video with some of the scholarly evidence.

P.S. The CBO study also points out that financing new spending with a value-added tax wouldn’t avert economic damage.

…by reducing the cost of time spent not working for pay relative to other goods, a consumption tax could reduce hours worked through a channel like that of a tax on labor.

For what it’s worth, even the pro-tax International Monetary Fund agrees with this observation.

P.P.S. It’s worth noting that the CBO study also shows that young people will suffer much more than older people.

…older cohorts, on average, experience smaller declines in lifetime consumption than younger cohorts

Which raises an interesting question of why millennials and Gen-Zers don’t appreciate capitalism and instead are sympathetic to the dirigiste ideology that will make their lives more difficult.

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Two days ago, I shared data showing that people in the big nations of Western Europe only have about 75 cents of income for every $1 that Americans earn.

That’s a remarkable gap, and it’s getting larger rather than smaller, even though theory says that shouldn’t happen.

But what’s even more shocking is that a poor person in the United States would be middle class in most European nations.

And a low-income person in America is better off than the average European.

When I see numbers like this (and lots of other data I have shared over the years, all of which tells the same story), I have two reactions.

  • First, I want to laugh at anyone who thinks Europeans have a better distribution of income.
  • Second, I want to scream at anyone who things we should copy the European economic policy.

But my laughing and screaming obviously has no effect because Washington politicians are poised to enact a giant expansion of the welfare state.

And there’s plenty of support for this risky concept from both Democrats and Republicans.

On the GOP side, Senator Mitt Romney has proposed a big tax increase to pay for a big increase in redistribution spending in the form of universal handouts for families with children, an idea that I criticized early last month.

And Oren Cass, a former campaign aide for Romney, has a slightly different plan to impose higher taxes to fund handouts for families with children. I recently critiqued that plan in an article co-authored with Veronique de Rugy of the Mercatus Center. Here’s some of what we wrote.

…the proposal for a Family Income Supplemental Credit (Fisc) from Oren Cass and Wells King is misguided, mostly because it would raise tax rates and expand the burden of government spending. …the Fisc would cost $200 billion annually. …$80 billion per year, would be financed with tax increases. …this fact alone should make the Fisc a non-starter as a matter of fiscal policy. …Income tax rates already are too high, and President Biden wants to raise them further. Self-styled conservatives should not be aiding and abetting the push for class-warfare taxation by adding to the collection of proposed tax-rate increases on workers, investors, entrepreneurs, and business owners. …it would be desirable for families to have more economic opportunity and financial security. However, it doesn’t follow that conservatives should support subsidizing child-bearing and -rearing. We do not think copying Europe and imposing more redistribution is the right approach. Americans enjoy far-higher living standards than people on the other side of the Atlantic Ocean, thanks in part to our smaller fiscal burden.

As you might expect, folks on the left are very excited about expanding the welfare state.

Biden’s so-called stimulus plan also contains a big one-time handout to households with children (with proponents hoping the lure of free cash will lead those households to demand that Washington make such giveaways a permanent part of American life).

Scott Winship of the American Enterprise Institute pours cold water on all the above proposals. Except he focuses not on fiscal policy, but on the fact that these schemes will subsidize dependency and encourage out-of-wedlock births – thus undermining the very successful welfare reform of the 1990s.

A child allowance would send unconditional cash benefits to nearly all families on a per-child basis.Child allowances run a very real risk of encouraging more single parenthood and more no-worker families, both of which could worsen entrenched poverty in the long run—an overreliance on government transfers, poverty over longer stretches of childhood, intergenerational poverty, and geographically concentrated poverty. …Poverty among the children of single parents fell from 50 percent in the early 1980s to 15 percent today, with an especially sharp decline during the 1990s. This was a period in which policy reforms encouraged work, by imposing time limits and work requirements on receipt of cash welfare and expanding benefits to low-income workers. …We should strive to reduce child poverty further, but it matters how we do so. Reducing this year’s poverty while exacerbating entrenched poverty and reversing the progress we have made since welfare reform would be a hollow victory indeed. So much the worse if a child allowance leads to irresistible calls for a universal basic income, which would also increase nonwork among the childless.

Michael Barone is similarly perplexed that lawmakers are so intent on reversing the progress of welfare reform.

When public policies have produced disastrous results, and when alternative policies have resulted in immediate, seemingly miraculous improvement, why would anyone want to go back to the earlier policies? …births to unwed mothers and welfare dependency rose…from 1965 to 1975, violent crime and welfare dependency, both heavily concentrated among blacks, nearly tripled — tripled. For two more decades, crime and welfare dependency remained at the same high levels, sometimes zooming higher. …Reform, first by Thompson in Wisconsin and then by Newt Gingrich and Bill Clinton in the 1996 welfare bill, required mothers to work. Social workers’ focus was changed from handing out more checks to helping moms get and hold jobs. The results: Welfare rolls plummeted; teen births plunged; kids raised by working moms did better in school and in life. Liberals have tried to stealthily roll back the reforms. They’ve been joined by some cultural conservatives, worried about population decline… These include Sen. Mitt Romney, who supports a child allowance that is fully refundable — which is to say that government will send a check to parents, married or unmarried… A version of this, limited to one year, has been inserted in the “COVID relief” bill of President Joe Biden’s administration. A single parent with two kids, working or not, could qualify for $7,200 a year plus $6,400 in food stamps. …Mickey Kaus…argues that…”(A) large subset of recipients will go from one worker to zero workers.” That means “millions of kids growing up in fatherless homes, where nobody goes into the labor force, where the mainstream world of employment is a foreign country.” Past experience says he’s right and that…the people most hurt will be black Americans.

So is there a real danger that per-child handouts will become law?

The obvious answer is yes since they are included in Biden’s faux stimulus.

But that’s just a one-year giveaway. It’s unclear whether households will get addicted to that free cash and thus demand that the handouts get extended (based on my Second Theorem of Government, I’m pessimistic).

Robert VerBruggen has some polling data on this topic.

Here’s how he characterized the results.

So, what does the average person think…? The 2019 American Family Survey, a poll covering 3,000 adults from the Center for the Study of Elections and Democracy, tested four different child tax credit proposals… The results give us a sense of how the public—and some key segments of it—see the issue. Interestingly, none of the ideas had majority support… Nearly half of Americans can support a credit sold as tax relief that’s either broad-based (CTC1) or targeted to the lower-income (CTC3), but an across-the-board handout to parents just for being parents (CTC4) can’t even garner one-third support. …the major takeaways are these: 1) The child tax credit, in general, is not as popular as one might think — even in questions that don’t mention the taxes needed to pay for it, it never manages a majority; and 2) despite some energy on the pro-family intellectual right for flat, universal child allowances (CTC4), Republicans and even independents among the general public are really not fond of the idea.

This data is semi-encouraging. I’m definitely glad people are suspicious of big per-child handouts. And I suspect opposition will grow when people learn about the European-style taxes that would be needed to finance such a huge giveaway.

But it doesn’t help the fight for sensible policy when some self-styled conservatives advocate for big expansions of the welfare state – especially when such ideas inevitably will erode societal capital.

P.S. As indicated by the above excerpt, Scott Winship’s article concludes with a warning that universal per-child handouts could be the camel’s nose under the tent for a “basic income,” which is the crazy notion that government should give everyone money. That’s an additional reason to reject the idea, as even Joe Biden once realized.

P.P.S. Some proponents use the term “child tax credit” to describe per-child handouts, but that’s disingenuous at best. A handout doesn’t magically become a tax cut just because the recipient happens to pay tax. Moreover, the handouts in these proposals generally are “refundable,” which is simply fiscal jargon for handouts that also go to people who don’t pay any tax.

P.P.P.S. The real-world evidence casts considerable doubt on the notion that per-child handouts will increase birthrates.

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We have decades of real-world experience with Keynesian economics. The results are not pretty.

It’s also worth pointing out that Keynesians have been consistently wrong with predicting economic damage during periods of spending restraint.

  • They were wrong about growth after World War II (and would have been wrong, if they were around at the time, about growth when Harding slashed spending in the early 1920s).
  • They were wrong about Thatcher in the 1980s.
  • They were wrong about Reagan in the 1980s.
  • They were wrong about Canada in the 1990s.
  • They were wrong after the sequester in 2013.
  • They were wrong about unemployment benefits in 2020.

This story needs to be told, again and again, especially since we’re now going to have another real-world test case thanks to President Biden’s so-called American Rescue Plan.

I just wrote a column on Biden’s proposal for the Foundation for Economic Education, and it is co-authored by Robert O’Quinn, who most recently served as the Chief Economist at the Department of Labor.

We started by pointing out that Biden is basically copying Trump’s big-spending approach, but with a different justification (Keynesianism instead of coronavirus).

Mr. Biden is bringing a new twist to the profligacy. Instead of trying to justify the new spending by saying it is needed to compensate households and businesses for government-mandated lockdowns, he is making the Keynesian argument that the new spending is a way of stimulating the economy. The same approach was used when he was Vice President, of course, but did not yield positive results. …Mr. Biden and his team apparently think the anemic results were a consequence of not spending enough money. Hence, the huge $1.9 trillion price tag for his plan. Will his approach work? …We can learn about economic recovery today by reviewing what happened during the Great Recession earlier this century and what happened at the end of World War II.

We explain the causes of the previous recession and point out that Obama’s so-called stimulus didn’t work.

…the Great Recession…was the result of an unsustainable housing bubble caused by overly accommodative monetary policy from the Federal Reserve and misguided housing policies. …it took years to clean up the mess from the bursting of the housing bubble. Households slowly rebuilt their savings and cleaned up their balance sheets. …Banks had to work out problem loans and rebuild their capital… Obama’s stimulus did not drive that healing process and spending more money would have done little to accelerate it.

And we also point out that the economy recovered very quickly after World War II, even though the Keynesians predicted disaster in the absence of a giant new package such as Truman’s 21-Point Program (his version of FDR’s horrible vision of an entitlement society).

Keynesians feared that demobilization would throw the US economy into a deep depression as federal spending was reduced. Paul Samuelson even wrote in 1943 that a failure to come up with alternative forms of government spending would lead to “the greatest period of unemployment and industrial dislocation which any economy has ever faced.” …President Harry Truman proposed “a 21-Point Program for the Reconversion Period” shortly after the war ended. But his plan, which was basically a reprise of Franklin Roosevelt’s New Deal, was largely ignored by Congress. Did the economy collapse, as the Keynesians feared? Hardly. …Spared a repeat of FDR’s interventionism, the economy enjoyed strong growth. One of the big tailwinds for growth is that the forced savings accumulated during the war years allowed consumers to go on a peacetime buying binge.

That last sentence in the above excerpt is key because 2021 is a lot like 1945. Back then, households had lots of money in the bank (wartime rationing and controls meant there wasn’t much to buy), which helped trigger the post-war boom.

Something similar is about to happen, as we explain in the column.

The current economic conditions are somewhat reminiscent of the ones that existed after World War II. The limited ability to spend money during the pandemic has helped boost the personal saving rate…  In aggregate terms, personal saving soared from $1.2 trillion in 2019 to $2.9 trillion in 2020. …pent-up demand funded with more than $1 trillion in excess savings will resuscitate…GDP.

So what does all this mean? Well, the good news is that 2021 is going to be a very good year for the economy. That’s already baked into the cake.

The bad news is that Biden is taking advantage of the current political situation to increase the burden of government spending.

…the economy prospered after World War II despite (or perhaps because of) the failure of Mr. Truman’s 21-point proposal. President Biden’s team is either unaware of this history, or they simply do not care. Perhaps they simply want to take advantage of the current environment to reward key constituencies. Or they may be trying to resuscitate the tattered reputation of Keynesian economics by spending a bunch of money so they can take credit for an economic recovery that is already destined to happen.

Since I gave the good news and bad news, I’ll close with the worse news.

There’s every reason to expect very strong growth in 2021, but Biden’s spending binge means that future growth won’t be as robust

  • Especially since the economy also is saddled with lots of wasteful spending by Bush, Obama, and Trump.
  • And especially if Biden is able to push through his agenda of higher taxes on work, saving, and investment.

The bottom line is that the United States is becoming more like Europe and the economic data tells us that means less prosperity and lower living standards.

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I periodically write about the importance of long-run growth and about the importance of convergence (whether poorer countries are catching up with richer countries, as suggested by theory).

This is because such data, especially over decades, teaches us very important lessons about the policies that are most likely to generate prosperity.

I’m revisiting these issues today because John Cochrane, a Senior Fellow at the Hoover Institution and a former professor of economics at the University of Chicago, recently wrote a column that contains a must-see chart showing how some of the major European nations have been losing ground to the United States over the past several decades.

The main thing to understand is that European nations were catching up to the United States after World War II, which is what one would expect.

But that trend came to a halt about 40 years ago and now these nations are suffering divergence instead of enjoying convergence.

Here’s some of Cochrane’s analysis.

…the US is 54% better off than the UK.. France…50% less than US. …the US is 96% better off than Italy. …And it’s been getting steadily worse. France got almost to the US level in 1980. And then slowly slipped behind. The UK seems to be doing ok, but in fact has lost 5 percentage points since the early 2000s peak. And Italy… Once noticeably better off than the UK, and contending with France, Italy’s GDP per capita is now lower than it was in 2000. GDP per capita is income per capita. The average European is about a third or more worse off than the average American, and it’s getting worse.

What’s most remarkable, as I wrote about back in 2014, is that the gap between the United States and Europe is “getting worse.”

Cochrane wonders if this is evidence against the European Union’s free-trade rules.

This should be profoundly unsettling for economists. Everyone thinks free trade is a good thing. The European union, one big integrated market, was supposed to ignite growth. It did not. The grand failure of the world’s biggest free trade zone really is a striking fact to gnaw on. Sure, other things are not held constant. Perhaps what should have been the world’s biggest free trade zone became the world’s biggest regulatory-stagnation, high-tax, welfare-state disincentive zone. Still, “it would have been even worse” is a hard argument to make.

For what it’s worth, I don’t think it’s “a hard argument to make”. I’ve pointed out – over and over again – that Europe’s reasonably good policies in some areas are more than offset by really bad fiscal policy.

Think of the different types of economic policy as classes for a student. If a kid flunks one class, that’s going to produce a sub-par grade point average even if there was good marks in all the other classes.

That’s what has happened on the other side of the Atlantic Ocean. Europe is suffering the consequences of a stifling tax burden and an onerous burden of government spending.

Besides, I suspect some of the benefits of free trade inside the European Union are offset by the damage of the E.U.’s protectionist barriers against trade with the rest of the world.

P.S. Some people may wonder why Germany was not included in Cochrane’s chart. I assume that’s because the reunification of West Germany and East Germany about 30 years ago creates a massive discontinuity in the data. For those interested, Germany is slightly better off than France and the U.K., according to the Maddison data, but still lagging well behind the United States.

P.P.S. Speaking of Germany, the divergence between East Germany and West Germany teaches an obvious lesson.

P.P.P.S. I don’t think it’s a coincidence that America started out-performing Europe after Reaganomics was implemented.

P.P.P.P.S One obvious takeaway from Cochrane’s data (though not obvious to President Biden) is that the United States should not be copying Europe. Unless, of course, one wants ordinary Americans to be much poorer.

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What nation serves as the most powerful example of how statism can wreck an economy and impoverish people?

Those are all good choices, but perhaps Argentina is the best example (or should we say worst example?).

If you go back 100 years, Argentina was one of the world’s richest nations. And, as recently as the late 1940s, it still ranked in the top 10 for per-capita economic output.

But then the nation veered to the left. Whether you call it Peronism or democratic socialism, there was a huge increase in the size and scope of government.

As you might expect, the results were terrible. Argentina since then has been the world’s worst-performing economy.

But things can always get worse.

In an article for National Review, Antonella Marty points out that President Fernandez is doing his part to continue the awful pattern of statism-generated crises in Argentina.

…it was already challenging for Argentines to maintain businesses and overcome the endless regulations and bureaucratic hurdles that comprise everyday life…the government of Alberto Fernández and Cristina Fernández de Kirchner has made matters worse… In brief: …The Argentine economy has been in recession since 2018. …Argentina ranks 126th in the World Bank’s Doing Business index, between Paraguay and Iran. It takes about five months to open a business in Argentina. …Argentina has public debt approaching 90 percent of GDP. …Argentina has one of the highest inflation rates in the world: 36.6 percent over the past year. Every month, wages steadily decline, and every 10 or 12 years, like clockwork, the Argentine peso crashes, diminishing household savings. …Argentine debt still trades at a steep discount, because investors rightfully recognize the dim prospects for a government that limits the creation of wealth through aggressive taxation, price controls, currency regulation, and skyrocketing levels of public spending. Argentina still does not realize the problem that has trapped us in a cycle of repeated crises for decades: the government. …The “solutions” invoked by left-wing Peronists — the progeny of the populist 20th-century president Juan Perón — always involve increased state intervention in the economy. Alberto Fernández has done nothing different. …As always, Argentina cannot solve the problem of big government with more government.

Perhaps the worst policy under Fernandez is the new wealth tax.

In an article for the Washington Post, Diego Laje and Anthony Faiola look at Argentina’s embrace of this destructive levy.

At least as far back as the 1940s, …class conflict has lingered just below the surface of this chronically indebted South American state. To dig itself out of a gaping fiscal hole made worse by the pandemic, Argentina is issuing a clarion call now echoing around the globe: Make the rich pay. …So why not, proponents argue, foist the cost of the epic global recession caused by the pandemic onto those who can most afford it? …Argentina, saddled with crippling debt exacerbated by the pandemic, adopted a one-time special levy on the rich in December, demanding up to 3.5 percent of the total net worth of citizens who hold at least $3.4 million of assets. …Argentina is turning to its wealthiest citizens after having lost the faith of foreign investors, and with little other means to plug financial holes. …fearful Argentines hoarded U.S. dollars, and the government, as it so often has in the past, turned to the printing press to make ends meet. Now Argentina is seeking another major bailout from the IMF… In recent months, Walmart, Latam Airlines, Uber Eats, Norwegian Airlines and Nike have reduced operations in Argentina or left the country. …Argentina crashed from its place at the top of the global wealth chain long ago, in a succession of economic crises, dictatorships and bruising political battles between the ruralistas and the Peronistas. 

The reporters don’t make the obvious connection between Peronist policies and the economy’s decline, but at least readers learn that Argentina hasn’t been doing well.

And the authors deserve credit for acknowledging that there are serious concerns about how wealth taxes can undermine prosperity.

But wealth taxes are notoriously tricky to get right, and they have a history of deeply negative side effects that can seriously undermine their intent. In France, for instance, a long-standing wealth tax, repealed in 2018, was blamed for an increase in tax dodging and the flight of thousands of the country’s richest citizens. …A decade ago, 12 of the world’s most-developed countries had wealth taxes on the books. The number has fallen to three.

I’m tempted to say the big takeaway from today’s column is that wealth taxes are a bad idea.

That’s true, of course, but the bigger lesson we should absorb is that a rich nation can become a poor nation.

Simply stated, if a government imposes enough bad policies – as has been the case in Argentina – then it’s just a matter of time before it declines relative to nations with sensible policies.

Perhaps there’s a lesson there for Joe Biden?

P.S. I sometimes fantasize that Argentina can experience a Chilean-style economic revitalization, but that seems very unlikely since even supposedly right-wing politicians pursue statist policies.

P.P.S. Though there is a small sliver of libertarianism in Argentina.

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To begin the seventh edition of our series comparing policy in Texas and California (previous entries in March 2010, February 2013, April 2013, October 2018, June 2019, and December 2020), here’s a video from Prager University.

There will be a lot of information in today’s column, so if you’re pressed for time, here are three sentences that tell you what you need to know.

California has all sorts of natural advantages over Texas, especially endless sunshine and beautiful topography.

Texas has better government policy than California, most notably in areas such as taxation and regulation.

Since people are moving from the Golden State to the Lone Star State, public policy seems to matter more than natural beauty.

Now let’s look at a bunch of evidence to support those three sentences.

We’ll start with an article by Joel Kotkin of Chapman University.

If one were to explore the most blessed places on earth, California, my home for a half century, would surely be up there. …its salubrious climate, spectacular scenery, vast natural resources… President Biden recently suggested that he wants to “make America California again”. Yet…he should consider whether the California model may be better seen as a cautionary tale than a roadmap to a better future… California now suffers the highest cost-adjusted poverty rate in the country, and the widest gap between middle and upper-middle income earners. …the state has slowly morphed into a low wage economy. Over the past decade, 80% of the state’s jobs have paid under the median wage — half of which are paid less than $40,000…minorities do better today outside of California, enjoying far higher adjusted incomes and rates of homeownership in places like Atlanta and Dallas than in San Francisco and Los Angeles. Almost one-third of Hispanics, the state’s largest ethnic group, subsist below the poverty line, compared with 21% outside the state. …progressive…policies have not brought about greater racial harmony, enhanced upward mobility and widely based economic growth.

Next we have some business news from the San Francisco Chronicle.

Business leaders fear tech giant Oracle’s recent announcement that it is leaving the Bay Area for Austin, Texas, will lead to more exits unless some fundamental political and economic changes are made to keep the region attractive and competitive. “This is something that we have been warning people about for several years. California is not business friendly, we should be honest about it,” said Kenneth Rosen, chairman of the UC Berkeley Fisher Center for Real Estate and Urban Economics. Bay Area Council President Jim Wunderman said… “From consulting companies to tax lawyers to bankers and commercial real estate firms, every person I talk with who provides services to big Bay Area corporations are telling me that their clients are strategizing about leaving…” Charles Schwab, McKesson and Hewlett Packard Enterprise have all exited the high-cost, high-tax, high-regulation Bay Area for a less-expensive, less-regulated and business-friendlier political climate. All of them rode off to Texas. …the pace of the departures appears to be increasing. …A recent online survey of 2,325 California residents, taken between Nov. 4 and Nov. 23 by the Public Policy Institute of California, found 26% of residents have seriously considered moving out of state and that 58% say that the American Dream is harder to achieve in California than elsewhere.

Are California politicians trying to make things better, in hopes of stopping out-migration to places such as Texas?

Not according to this column by Hank Adler in the Wall Street Journal.

California’s Legislature is considering a wealth tax on residents, part-year residents, and any person who spends more than 60 days inside the state’s borders in a single year. Even those who move out of state would continue to be subject to the tax for a decade… Assembly Bill 2088 proposes calculating the wealth tax based on current world-wide net worth each Dec. 31. For part-year and temporary residents, the tax would be proportionate based on their number of days in California. The annual tax would be on current net worth and therefore would include wealth earned, inherited or obtained through gifts or estates long before and long after leaving the state. …The authors of the bill estimate the wealth tax will provide Sacramento $7.5 billion in additional revenue every year. Another proposal—to increase the top state income-tax rate to 16.8%—would annually raise another $6.8 billion. Today, California’s wealthiest 1% pay approximately 46% of total state income taxes. …the Legislature looks to the wealthiest Californians to fill funding gaps without considering the constitutionality of the proposals and the ability of people and companies to pick up and leave the state, which news reports suggest they are doing in large numbers. …As of this moment, there are no police roadblocks on the freeways trying to keep moving trucks from leaving California. If A.B. 2088 becomes law, the state may need to consider placing some.

The late (and great) Walter Williams actually joked back in 2012 that California might set up East German-style border checkpoints. Let’s hope satire doesn’t become reality.

But what isn’t satire is that people are fleeing the state (along with other poorly governed jurisdictions).

Simply state, the blue state model of high taxes and big government is not working (just as it isn’t working in countries with high taxes and big government).

Interestingly, even the New York Times recognizes that there is a problem in the state that used to be a role model for folks on the left.

Opining for that outlet at the start of the month, Brett Stephens raised concerns about the Golden State.

…today’s Democratic leaders might look to the very Democratic state of California as a model for America’s future. You remember California: People used to want to move there, start businesses, raise families, live their American dream. These days, not so much. Between July 2019 and July 2020, more people — 135,400 to be precise — left the state than moved in… No. 1 destination: Texas, followed by Arizona, Nevada and Washington. Three of those states have no state income tax.

California, by contrast, has very high taxes. Not just an onerous income tax, but high taxes across the board.

Californians also pay some of the nation’s highest sales tax rates (8.66 percent) and corporate tax rates (8.84 percent), as well as the highest taxes on gasoline (63 cents on a gallon as of January, as compared with 20 cents in Texas).

Sadly, these high taxes don’t translate into good services from government.

The state ranks 21st in the country in terms of spending per public school pupil, but 27th in its K-12 educational outcomes. It ties Oregon for third place among states in terms of its per capita homeless rate. Infrastructure? As of 2019, the state had an estimated $70 billion in deferred maintenance backlog. Debt? The state’s unfunded pension liabilities in 2019 ran north of $1.1 trillion, …or $81,300 per household.

Makes you wonder whether the rest of the nation should copy that model?

Democrats hold both U.S. Senate seats, 42 of its 53 seats in the House, have lopsided majorities in the State Assembly and Senate, run nearly every big city and have controlled the governor’s mansion for a decade. If ever there was a perfect laboratory for liberal governance, this is it. So how do you explain these results? …If California is a vision of the sort of future the Biden administration wants for Americans, expect Americans to demur.

Some might be tempted to dismiss Stephens’ column because he is considered the token conservative at the New York Times.

But Ezra Klein also acknowledges that California has a problem, and nobody will accuse him of being on the right side of the spectrum.

Here’s some of what he wrote in his column earlier this month for the New York Times.

I love California. I was born and raised in Orange County. I was educated in the state’s public schools and graduated from the University of California system… But for that very reason, our failures of governance worry me. California has the highest poverty rate in the nation, when you factor in housing costs, and vies for the top spot in income inequality, too. …but there’s a reason 130,000 more people leave than enter each year. California is dominated by Democrats, but many of the people Democrats claim to care about most can’t afford to live there. …California, as the biggest state in the nation, and one where Democrats hold total control of the government, carries a special burden. If progressivism cannot work here, why should the country believe it can work anywhere else?

Kudos to Klein for admitting problems on his side (just like I praise the few GOPers who criticized Trump’s big-government policies).

But his column definitely had some quirky parts, such as when he wrote that, “There are bright spots in recent years…a deeply progressive plan to tax the wealthy.”

That’s actually a big reason for the state’s decline, not a “bright spot.”

I’m not the only one to recognize the limitations of his column.

Kevin Williamson wrote an entire rebuttal for National Review.

Who but Ezra Klein could survey the wreck left-wing Democrats have made of California and conclude that the state’s problem is its excessive conservatism? …Klein the rhetorician anticipates objections on this front and writes that he is not speaking of “the political conservatism that privatizes Medicare, but the temperamental conservatism that” — see if this formulation sounds at all familiar — “stands athwart change and yells ‘Stop!’” …California progressives have progressive policies and progressive power, and they like it that way. That is the substance of their conservatism. …Klein and others of his ilk like to present themselves as dispassionate pragmatists, enlightened empiricists who only want to do “what works.” …Klein mocks San Francisco for renaming schools (Begone, Abraham Lincoln!) while it has no plan to reopen them, but he cannot quite see that these are two aspects of a single phenomenon. …Klein…must eventually understand that the troubles he identifies in California are baked into the progressive cake. …That has real-world consequences, currently on display in California to such a spectacular degree that even Ezra Klein is able dimly to perceive them. Maybe he’ll learn something.

I especially appreciate this passage since it excoriates rich leftists for putting teacher unions ahead of disadvantaged children.

Intentions do not matter very much, and mere stated intentions matter even less. Klein is blind to that, which is why he is able to write, as though there were something unusual on display: “For all the city’s vaunted progressivism, [San Francisco] has some of the highest private school enrollment numbers in the country.” Rich progressives have always been in favor of school choice and private schools — for themselves. They only oppose choice for poor people, whose interests must for political reasons be subordinated to those of the public-sector unions from which Democrats in cities such as San Francisco derive their power.

Let’s conclude with some levity.

Here’s a meme that contemplates whether California emigrants bring bad voting habits with them.

Though that’s apparently more of a problem in Colorado rather than in Texas.

And here’s some clever humor from Genesius Times.

P.S. My favorite California-themed humor (not counting the state’s elected officials) can be found here, hereherehere, and here.

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The 21st century has been bad news for proponents of limited government. Bush was a big spender, Obama was a big spender, Trump was a big spender, and now Biden also wants to buy votes with other people’s money.

That’s the bad news.

The good news is that there is still a simple solution to America’s fiscal problems. According to the just-released Budget and Economic Outlook from the Congressional Budget Office, tax revenues will grow by an average of 4.2 percent over the next decade. So we can make progress, as illustrated by this chart, if there’s some sort of spending cap so that outlays grow at a slower pace.

The ideal fiscal goal should be reducing the size of government, ideally down to the level envisioned by America’s Founders.

But even if we have more modest aspirations (avoiding future tax increases, avoiding a future debt crisis), it’s worth noting how modest spending restraint generates powerful results in a short period of time. And the figures in the chart assume the spending restraint doesn’t even start until the 2023 fiscal year.

The main takeaway is that the budget could be balanced by 2031 if spending grows by 1.5 percent per year.

But progress is possible so long as the cap limits spending so that it grows by less than 4.2 percent annually. The greater the restraint, of course, the quicker the progress.

In other words, there’s no need to capitulate to tax increases (which, in any event, almost certainly would make a bad situation worse).

P.S. The solution to our fiscal problem is simple, but that doesn’t mean it will be easy. Long-run spending restraint inevitably will require genuine reform to deal with the entitlement crisis. Given the insights of “public choice” theory, it will be a challenge to find politicians willing to save the nation.

P.P.S. Here are real-world examples of nations that made rapid progress with spending restraint.

P.P.P.S. Switzerland and Hong Kong (as well as Colorado) have constitutional spending caps, which would be the ideal approach.

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Two years ago, I explained that socialism is an economic failure, regardless of how it is defined.

In today’s follow-up column, let’s start with an excellent video from John Stossel.

Before addressing the three myths mentioned in the video, it’s worth noting that there’s a technical definition of socialism based on policies such as government ownershipcentral planning, and price controls, and a casual definition of socialism based on policies such as punitive tax rateswelfare state, and intervention.

I don’t like any of those policies, but they are not identical.

That’s why I came up with this flowchart to help illustrate the different strains of leftism (just as, on the other side of the spectrum, Trumpism is not the same as Reaganism is not the same as libertarianism).

Now that we’ve covered definitions, let’s dig into Stossel’s video. He makes three main points.

  1. Socialist policies don’t work any better if imposed by governments that are democratically elected. Simply stated, big government doesn’t magically have good consequences simply because a politician received 51 percent of the vote in an election.
  2. Scandinavian nations are not socialist. I’ve addressed this issue several times and noted that countries such as Sweden and Denmark have costly welfare states, but they are based on private property and rely on private markets to allocate resources.
  3. Socialism has a lot in common with fascism. Stossel could have pointed out that Hitler was the head of the National Socialist Workers Party, but he focused on the less inflammatory argument that socialism and fascism both rely on government control of the economy.

By the way, Stossel also narrated an earlier video on this same topic that addressed two other topics.

First, he countered the argument that we can’t learn anything from the failure of nations such as the Soviet Union and Cuba because they did not have not “real socialism.” My two cents on that topic is to challenge socialists (or anyone else on the left) to answer this question.

Second, he addressed the specific argument that Venezuela can’t teach us anything because its collapse has nothing to do with socialism. The New York Times may want people to think Venezuela’s failure is due to factors such as low oil prices, but the real reason is that economic liberty has been extinguished.

The bottom line is that socialism doesn’t work. Regardless of how it’s defined, it’s both immoral and a recipe for economic decline.

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The economic disintegration of Venezuela is a powerful example how socialism fails. Even in a nation with massive oil wealth.

This video from Reason tells the tragic story.

I think long-run data is especially valuable when assessing a nation’s economic performance.

And Venezuela definitely looks terrible when looking at decades of data on per-capita economic output.

Especially when compared to a pro-market nations such as Chile.

Not that we should be surprised. This is what we find anytime capitalist-oriented counties are compared with statism-oriented countries.

And there are many other case studies.

But let’s re-focus on the problems of Venezuela. In one of her Wall Street Journal columns, Mary Anastasia O’Grady analyzes the government-caused crisis. She starts by describing what happened.

Efforts to guarantee outcomes are at odds with what it means to live in a free society where equality under the law is the guiding principle. …Hugo Chávez…promised to make everyone in his country equally well-off. The concept sold in a nation that believed it was infinitely rich because it was swimming in oil. …stick it to the haves. When he did, they packed their bags and left. …it is the flight of the knowledge worker that has done the most harm to the nation. …The Bolivarian revolution’s earliest large-scale assault on know-how came during a lockout at the monopoly oil company Petróleos de Venezuela (PdVSA) in December 2002. …the regime used it to purge at least 18,000 PdVSA and related-company employees, gutting the industry of most of its experienced personnel. By replacing fired workers with political loyalists, Chávez believed he was protecting his golden goose. …In 2009 the regime expropriated Venezuelan companies that served the oil industry.

And she concludes by describing the consequences.

as long as oil prices were high, the costs of such recklessness was hidden. The party ended when prices tanked in 2014, government revenues dropped precipitously, and central bank money-printing led to a mega-devaluation of the bolivar. …another wave of oil engineers—this time led by a younger generation—went abroad to work. In the years that followed, more oil technicians threw in the towel on life in Venezuela. This vicious circle of declining revenue and human-capital flight has brought the once-mighty Venezuelan petroleum powerhouse to a standstill. 

In other words, exactly as depicted in the video at the start of this column.

No wonder Venezuelans are eating their pets.

Or joining gangs simply as a strategy to get food.

The bottom line is that socialism doesn’t work. Even in a country that has massive reserves of oil.

Sooner or later, the attempt to achieve coerced equality will mean that too many people are on the dole and too few people are producing. Which brings to mind Margaret Thatcher’s famous observation.

P.S. The New York Times actually wrote a big story about Venezuela’s collapse and somehow never mentioned socialism.

P.P.S. Here are four other videos about the impact of socialism in Venezuela.

P.P.P.S. The situation has become so dire that even some socialists are disavowing Venezuela.

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If asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and “bureaucracy.”

And they would be correct.

Here’s a chart from the OECD, showing spending burdens for major European nations. In a continent that’s known for big welfare states and costly government, France (highlighted in red) easily ranks as the worst of the worst.

France also ranks as the worst of the worst when looking just at spending on social welfare programs.

Indeed, it’s probably just a matter of time before the country becomes another Greece.

But none of these facts matter to Rokhaya Diallo, a French journalist who thinks her nation’s government is too small.

I’m not joking. She actually wrote a column for the Washington Post asserting that France’s response to the corornavirus has been hampered by fiscal austerity.

…the government has failed multiple times at handling the crisis… It was a shock for citizens to discover that France — the world’s seventh largest economy, widely praised for its remarkable health system — could end up struggling to cover the basic needs of its hospitals. But was it a total surprise? Not really. …President Emmanuel Macron…policies…favored the richest fringes of the population while abandoning workers who did not earn enough to cover their necessities. …Under Macron, more than $3 billion (2.6 billion euros) has been cut from public hospitals in 2018 and 2019 — far more than under his predecessor. And it took the pandemic to ensure there were no further cuts to this vital infrastructure. …a politician who claimed he intended to govern a “start-up nation” and thereby support a neoliberal agenda. …For the past two decades, French public services have been damaged by austerity rules… The major health crisis has exposed the serious damages caused by the neoliberal turn implemented in France. At a moment when effective public services are needed more than ever before, austerity is a threat not only to the social stability but also the well-being of the population.

Wow. I’m reminded of the official from Belgium (3rd-biggest fiscal burden in the above chart) who complained a few years ago about “the small size of the Belgian government.”

These people must live in an alternative universe where facts don’t matter.

By the way, if Ms. Diallo is actually interested in “the well-being of the population,” I wonder what she thinks of the OECD data that shows that people in the bottom 10 percent in the United States are better off than the average middle class person in France?

Given that the United States, with its medium-sized government, does so much better than France, with its large-sized government, how can she reconcile those numbers with her dogmatic view that society will be better off if government is even bigger?

Needless to say, I’m not holding my breath expecting her to address these issues.

But the people of France have noticed something is wrong. Many of them would flee to the United States if they had the opportunity.

P.S. Regarding the title of Ms. Diallo’s column, neoliberal is the term used in Europe for classical liberals – i.e., advocates of small government and individual liberty.

P.P.S. The current president of France, Emmanuel Macron, has expressed some sympathy for market-oriented reforms, which may explain Ms. Diallo’s hostility (but does not justify her inaccuracy).

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I have relentlessly criticized Republicans in recent years for being profligate big spenders.

But I have some good news. The GOP is finding religion and is once again fretting about big government.

The bad news is that many of them are total hypocrites.

The only reason that they’re now beating their chests about fiscal responsibility is that there’s now a Democrat in the White House pushing for big government rather than a Republican in the White House pushing for big government.

Talking a few days ago with Politifact, I remarked on the GOP’s battlefield conversion.

“The very narrow Democratic majorities in the House and Senate will make big policy changes difficult for Biden,” said Daniel Mitchell, a conservative economist with decades of experience in Washington. “Republicans were big spenders under Trump, but they’ll dust off their fiscal conservatism rhetoric with Biden in the White House. …”There will be unanimous, or near-unanimous, GOP opposition to the tax increases,” Mitchell said. That could make passage difficult.

I’m not the only one to notice Republicans change their spots when Democrats are in charge.

In her Washington Post column, Catherine Rampell also notes their hypocrisy.

It’s almost like clockwork. As soon as a Democrat enters the White House, Republicans pretend to care about deficits again. …And so Republicans laid the groundwork for blocking the Biden administration’s request for more covid-19 fiscal relief, on the grounds that further spending is not merely unnecessary but also irresponsible. …These foul-weather fiscal hawks neglect to mention, …before the coronavirus pandemic — the Republican-controlled Senate passed and President Donald Trump signed spending bills that added…$2 trillion to deficits.

If Ms. Rampell’s column focused solely on Republicans behaving inconsistently, I would fully applaud.

Unfortunately, she also used the opportunity to make some assertions that deserve some pushback. Beginning with what she said about the 2017 tax reform.

…the GOP’s prized 2017 tax cuts added nearly $2 trillion to deficits.

It is true that the legislation is a short-run tax cut, but there’s no long-run revenue reduction because many of the provisions expire at the end of 2025.

And, as Brian Riedl made clear in this chart, the tax cuts only play a tiny role even if all the provisions ultimately are made permanent.

Ms. Rampell then makes a Keynesian argument that more spending would be stimulative.

…the U.S. economy actually needs more federal spending, and President Biden has proposed a $1.9 trillion plan… Republicans objecting to Biden’s proposal…seem to be writing off the need for more relief entirely, at least now that a Democrat is president.

Is she right about Republican hypocrisy? Yes.

Is she right that bigger government produces growth? No.

If Biden and the Democrats were simply arguing that some level of handouts are needed and justified to compensate for government-mandated shutdowns, I wouldn’t be happy, but I also wouldn’t complain.

But I do object to the mechanistic argument that government can magically produce prosperity by borrowing money from the economy’s left pocket and putting it in the economy’s right pocket.

At best, the borrow-and-spend approach only produces a transitory bump in consumption, but does nothing for real problem of inadequate income (which is why we should focus on GDI rather than GDP).

She also engages in a bit of historical revisionism about Obama’s failed stimulus from 2009.

This is, not coincidentally, almost exactly what they did about a decade ago. …Republicans suddenly demanded to turn off fiscal (and monetary) spigots once Barack Obama was elected.

In reality, Republicans didn’t control either the House or Senate in Obama’s first two years. He was able to adopt his so-called stimulus. And the economy was stagnant.

Republicans did win the House at the end of 2010 and were somewhat successful in controlling spending for the next few years. And that’s when the economy did better.

Just like it did better during the Reagan and Clinton years when there was spending restraint.

To put this discussion in the proper context, I’ll close with another chart from Brian Riedl. The long-run problem we face is not red ink. Deficits and debt are merely the symptom of the real problem of excessive government spending.

P.S. I wish Politicifact had identified me as a libertarian. I’m only willing to be called a conservative if that means Reaganism, but I worry it now means Trumpism.

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I wrote a four-part series last year about coronavirus and big government (here, here, here, and here), so it goes without saying that the first two lines of this tweet deserve some sort of accuracy award for hitting the nail on the head.

But the sentiment expressed in the last line of the tweet also deserves some sort of award.

I don’t know if the award should be for false hope or naive expectation, but I am sadly confident that everything will stay the same. Or perhaps get even worse.

Simply stated, instead of the deregulation that’s needed, here are some more likely outcomes.

  • The World Health Organization will get rewarded with a bigger budget and more power, notwithstanding its failures.
  • The Centers for Disease Control will get rewarded with a bigger budget and more power, notwithstanding its failures.
  • The Food and Drug Administration will get rewarded with a bigger budget and more power, notwithstanding its failures.

Why am I so pessimistic? Because I understand “public choice,” which is the application of micro-economic analysis (things like incentives) to the behavior of politicians and bureaucrats. In other words, people in Washington act in ways to advance their own interests.

Just in case all this isn’t clear, here are a few headlines and tweets to drive the point home.

We’ll start with an understatement.

And here are examples of that failure.

Starting with a column in the Wall Street Journal.

And this tweet.

There are many more headlines that tell tragic stories.

From the Houston Chronicle.

Here’s a very sad and succinct headline.

Government intervention also hurt in little ways.

This tweet tells us the lesson we should learn.

 

As does this tweet as well.

One of Trump’s great failures was protectionism.

So we shouldn’t be surprised that trade barriers also hurt the fight against the pandemic.

And here’s a tweet about the FDA’s bungling.

Don’t forget that bureaucracy and big government also caused problems in other nations.

Such as the United Kingdom.

Sounds like the bureaucrats in the U.K. want to compete with the FDA and CDC for some sort of incompetence award.

There was a better response in Germany because the private sector played a much bigger role.

And the German approach was better than the United States as well.

Needless to say, the WHO also deserves some negative attention.

Indeed, it should come with this warning label.

And we’ll close by shifting back to the failure of government in the United States.

This column from the New York Times captures the real lesson of the past 12 months.

P.S. At the risk of outing myself as a libertarian, this image tells us everything we need to know. As does this collection of cartoons.

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Early last decade, when writing about Spain’s fiscal crisis, I pointed out that the country got in trouble for the same reason Greece got in trouble.

Simply stated, government spending grew faster than the private economy. And when nations violate fiscal policy’s Golden Rule, that means a growing fiscal burden and – if maintained for a long-enough period of time – a recipe for chaos.

Spain managed to get past that crisis, thanks to indirect bailouts and some belated spending restraint.

But some politicians in the country didn’t learn from that experience. The nation now has a hard-left government that is going to test how long it takes to create another fiscal crisis.

And even establishment-oriented experts are worried. In an article last June for the Bulwark, Desmond Lachman and John Kearns warned that Spanish politicians were putting the nation in a precarious fiscal position.

Spain’s economy was painfully slow to recover from its 2008 economic recession, which saw its GDP drop by 4 percent. …Over the past decade, a major reason for Spain’s poor economic performance was its need to mend its public finances, which were seriously compromised by the collapse of its housing bubble… Spain’s coronavirus-induced recession could now make the 2008 housing market collapse look like a minor speed bump. …Spain’s GDP is projected to contract by almost 13 percent. As in 2008, Spanish public finances will be sure to suffer… the country’s public-debt-to-GDP ratio will by the end of this year jump to 120 percent—a level appreciably above its 2010 peak. …Another disturbing projection is the toll that the recession will take on its banking system… It does not inspire confidence that Spanish banks entered the present crisis with among the slimmest capital reserves in Europe.

At the risk of understatement, no sensible person should have confidence in any aspect of Spain’s economy, not just the banking system.

A few days ago, Daniel Raisbeck authored a column for Reason about the country’s downward spiral to statism.

The PSOE-Podemos coalition is not only Spain’s most left-wing government since the country restored democracy after dictator Francisco Franco’s death in 1975; currently, it’s also the most leftist government in the entire European Union (E.U.). As you would expect, this has brought about a barrage of progressive pet projects…a torrent of debt, public spending, and tax increases. …The government’s budget for 2021 also includes record levels of spending after the executive raised the ceiling on non-financial expenditures by over 50 percent. …The Spanish government has also taken advantage of the current crisis to impose drastic tax hikes. These include a “tax harmonization” scheme—a euphemism for getting rid of fiscal competition—that would end the freedom of autonomous communities, the largest political and administrative units in Spain, to set their own policies in terms of wealth, inheritance, and income taxes, the last of which consist of both a national and a regional rate.

Let’s now look at a few additional passages from the article.

One of the reasons I oppose fiscal centralization in Europe is that it will subsidize more bad policy. Which is now happening.

Spain’s spending spree will be subsidized with €140 billion ($172 billion) of E.U. money, part of a “recovery fund” agreed upon last July at an emergency summit in Brussels.

It’s also worth noting that higher taxes don’t necessarily produce more revenue.

This is a lesson Spanish politicians already should have learned because of mistakes by the central government.

They also have evidence at the regional level. Catalonia has a bigger population than Madrid and imposes higher tax rates, but it collects less revenue.

…although Madrid…charges some of the country’s lowest rates for inheritance and income taxes, the region raises €900 million ($1.1 billion) more in taxes per year than the far more interventionist Catalonia according to economist José María Rotellar.

As you might expect, politicians in Catalonia grouse that Madrid’s lower tax rates are “fiscal dumping” and they argue in favor of tax harmonization.

Madrid’s leading lawmaker has a very deft response.

…the Republican Left of Catalonia, the pro-Catalan independence party that allowed Sánchez to become president, recently accused Madrid of practicing “fiscal dumping.” …Isabel Díaz Ayuso, the Popular Party president of the Community of Madrid, stated that “if Catalonia wants fiscal harmonization, they should reduce their own taxes,” a reference to that region’s notoriously high taxation levels.

Touche!

Let’s close by returning to the big-picture topic of whether it’s a good idea for Spain’s government to expand the nation’s fiscal burden.

The leftists politicians currently in charge make the usual class-warfare arguments about helping the poor and penalizing the rich. Whenever I hear that kind of nonsense, I’m reminded of this jaw-dropping story about how people with modest incomes are being strangled by statism.

Imagine only making €1000 per month and losing two-thirds of your income to government?!?

No wonder Spaniards come up with clever ways of lowering their tax burdens.

P.S. The current government of Spain may be naive (or malicious) about taxes, but there are some sensible economists at the country’s central bank who have written about the negative impact of higher tax rates.

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I’ve already written a column about the best and worst developments of 2020.

But what if we wanted to identify a lesson that society should have learned from the past 12 months?

Well, there’s an obvious answer, especially for those of us with libertarian sympathies.

In a column for the Foundation for Economic Education, Professor Alexander William Salter of Texas Tech University explains that the key takeaway from 2020 is that government doesn’t work very well, especially compared to the private sector.

The disaster that was 2020 is finally over. Now it’s time for the inevitable post-mortems. …the diagnosis is straightforward. COVID-19 was going to be bad, no matter what. But the failures of big government made it much, much worse. …In particular, the Centers for Disease Control, Food and Drug Administration, and public teachers’ unions are the great American villains of 2020. Meanwhile, the heroes of this year are almost entirely in the private sector. From Zoom to vaccine development, Big Pharma and Big Tech—yes, you read that right—made this horrible year bearable. …For progressives and so-called “national” conservatives who support big government, 2020 represented the ultimate test for their philosophies. …Both want a big, energetic state promoting what (they believe to be) the good of the nation. Well, here was their chance for the government to shine. The result was shameful failure. The COVID-19 crisis put left-wing and right-wing statism on trial—and both were found guilty of ill-intent and gross incompetence.

Amen.

Professor Salter’s message is basically an expanded version of the “tweet of the year” I wrote about last month.

He also explains more about the villains of 2020, starting with the Centers for Disease Control.

…the CDC is the reason America lagged behind other nations for so long in terms of COVID-19 testing. We had the virus genome fully mapped in January, which enabled the rapid production of private testing kits. But the CDC forced these operations to shut down, coming up with its own test—which was flawed, and even contaminated! …On this issue alone, CDC ineptitude is likely responsible for tens of thousands of deaths. …

I agree.

He then turns his rhetorical fire on the Food and Drug Administration.

How about the FDA? It is no secret that the vaccine was delayed because it needed FDA approval. Indeed, several working vaccines could have come much earlier, were it not for our bungling bureaucrat gatekeepers.

I agree.

Last but not least, he castigates the government’s school monopoly.

…largely due to pressure from public teachers’ unions, many schools remained closed in the fall. In fact, the US was pretty much the only country to pursue the alarmist policy of keeping schools closed. The toll on school-aged children is immense, from psychological trauma to impeded learning. Low-income families were hit especially hard.

At the risk of understatement, I agree.

The bottom line is that government failed us in 2020. Over and over and over and over again.

As you might expect, though, the crowd in Washington has reached the opposite conclusion.

They mostly used the pandemic as an excuse to expand the burden of government.

Hopefully, much of the new spending will be temporary, but it goes without saying that there will be considerable pressure in Washington to extend and expand various “temporary” programs.

P.S. The secondary lesson from 2020 is that a smaller government works better than a bigger government. And the tertiary lesson is that a decentralized smaller government is best of all.

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For supporters of sensible policy, 2008 was not a good year. The economy suffered a big drop thanks to bad government policies (easy-money from the Federal Reserve and corrupt housing subsidies from Fannie Mae and Freddie Mac).

So what did politicians do?

Sadly, they gave us another tragic example of Mitchell’s Law. In response the damage caused by one set of bad policies, they adopted another set of bad government policies (in this case, the TARP bailout and Keynesian “stimulus” schemes).

Quite predictably, bailouts and bigger government didn’t work. Either in the United States or elsewhere in the world.

But proponents of Keynesian economics never learn from their mistakes. They simply assert that their policies somehow would have worked if the government spent even more money and maintained profligacy over a longer period of time.

You may think I’m joking, but here’s another example of this phenomenon. According to a recent news report, a senior bureaucrat at the Organization for Economic Cooperation and Development says we can have more prosperity if politicians make government bigger – both today and tomorrow.

The chief economist of the OECD has urged governments not to rush to cut public spending deficits… Laurence Boone – who runs the Organisation for Economic Cooperation and Development’s Economics Department – also said that political leaders should use fiscal policy to revive their economies… Boone said that governments had been correct to invest in stimulus packages during 2009: “The mistake came later in 2010, 2011 and so on, and that was true on both sides of the Atlantic,” she commented.

Needless to say, her analysis is wrong. If the answer is lots of spending over a long period of time, then why did the U.S. economy languish for an entire decade under the Keynesian policies of Hoover and FDR? And why has the Japanese economy languished for several decades when politicians on that side of the Pacific Ocean have imposed Keynesian policies?

Before pushing for another orgy of government spending, shouldn’t advocates of Keynesian economics be required to show us at least one success story for their approach, in any country and at any point in history?

Don’t hold your breath waiting for an answer.

By the way, before getting her sinecure at the OECD, Ms. Boone was an economic advisor to French President Francois Hollande.

That should have been a black mark. Hollande was the socialist who imposed confiscatory tax rates (resulting in effective tax rates above 100 percent for thousands of people) and drove entrepreneurs to flee the nation. Also, I can’t resist noting that Hollande copied Biden with the absurd assertion that higher taxes are “patriotic.”

Though, to be fair, Hollande eventually decided to be merciful and limit any taxpayer’s overall burden to 80 percent. How merciful!

Anyhow, you would think anyone associated with Hollande’s disastrous tenure would have a hard time getting another job.

But to the statists in charge of hiring at the OECD, Boone’s association with failed socialists policies apparently made her the most attractive candidate.

P.S. Returning to the article cited above, Ms. Boone did make one sensible observation, noting that Keynesian easy-money policies push up asset prices, which mostly benefits the rich.

…governments propped up growth with monetary policy – slashing interest rates and pumping liquidity into the banking system. But Boone argued that monetary policy “has distributional impacts” – it can for example drive up asset prices, favouring the wealthy.

Very true.

It’s great when people become rich by providing goods and services to the rest of us. It’s nauseating when people become rich because of bad government policy.

P.P.S. If governments follow Ms. Boone’s and expand the burden of government spending, it will be just a matter of time before they also impose higher taxes. But Ms. Boone won’t have to worry about that since OECD bureaucrats (like their counterparts at other international bureaucracies) get tax-free salaries.

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When I write an everything-you-need-to-know column, I’m inevitably guilty of hyperbole.

All that I’m really doing is highlighting a very compelling example of how politicians make a mess of just about anything they touch.

That’s even true in the rare cases when they’re trying to enact policies I prefer.

The crux of the problem is that politicians like having some level of power and control over various sectors of the economy, for the simple public choice-driven reason that they can then extort bribes, campaign cash, and other goodies.

Which is good news for donors, crooks, and cronies, as P.J. O’Rourke wisely noted.

But it’s bad news for those of us who don’t like sleaze. Yet sleaze is almost inevitable when politicians have power to interfere with private market transactions.

Check out these excerpts from a Politico report.

In the past decade, 15 states have legalized a regulated marijuana market for adults over 21, and another 17 have legalized medical marijuana. But in their rush to limit the numbers of licensed vendors and give local municipalities control of where to locate dispensaries, they created something else: A market for local corruption. Almost all the states that legalized pot either require the approval of local officials – as in Massachusetts — or impose a statewide limit on the number of licenses, chosen by a politically appointed oversight board, or both. These practices effectively put million-dollar decisions in the hands of relatively small-time political figures – the mayors and councilors of small towns and cities, along with the friends and supporters of politicians who appoint them to boards. …They have also created a culture in which would-be cannabis entrepreneurs feel obliged to make large campaign contributions or hire politically connected lobbyists. …It’s not just local officials. Allegations of corruption have reached the state level in numerous marijuana programs, especially ones in which a small group of commissioners are charged with dispensing limited numbers of licenses.

Needless to say, what’s happening in the marijuana industry happens wherever and whenever politicians have power.

“All government contracting and licensing is subject to these kinds of forces,” said Douglas Berman, a law professor at Ohio State University who authors a blog on marijuana policy. …“There’s a lot of deal-making between businesses and localities that creates the environment of everyone working their way towards getting a piece of the action,” Berman said. Whether it’s city or county officials that need to be appeased, local control is “just another opportunity for another set of hands to be outstretched.”

The report concludes by noting that corruption can be avoided very simply. Just make sure politicians and other people in government have no power or authority.

States that have largely avoided corruption controversies either do not have license caps — like Colorado or Oklahoma — or dole out a limited number of licenses through a lottery rather than scoring the applicants by merit — like Arizona. Many entrepreneurs, particularly those who lost out on license applications, believe the government shouldn’t be in the business of picking winners and losers and should just let the free market do its job.

Amen.

I’ll conclude by noting that politicians are doing the right thing in the worst way.

I want to end the War on Drugs because it is a costly failure. It’s not that I think drug use is a good idea. But I recognize that the social harm of prohibition is greater than the social harm of legalization.

And, as a libertarian, I believe people should be free to make their own decisions (consistent with the libertarian non-aggression principle, of course), even if I happen to disapprove.

Sadly, politicians are not legalizing pot for libertarian reasons.

Instead, they see it as a way of having a new product to tax (and they’re botching that). And, as illustrated by today’s story, they see it as a way of lining their own pockets.

I’m almost tempted to say we’d be better off if marijuana was criminalized so it could be sold on the black market instead.

But the real moral of the story is that government power is a recipe corruption.

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Most readers care about economic developments and economic comparisons involving the United States.

Some readers also care about what’s happening in other major nations, such as China, Germany, Italy, France, Japan, and the United Kingdom.

Relatively few readers, by contrast, care about economic developments in nations with comparatively small economic footprints, such as Peru.

That’s understandable, but I want to cite Mary Anastasia O’Grady’s recent column in the Wall Street Journal because she focuses attention on the very important – and very unsavory – relationship between big government and corruption.

Her column is about political turmoil in Peru, but what she writes applies everywhere in the world.

…it’s hard to see how an electorate that so often votes for populism at the polls can extricate itself from the grasp of crooked politicians. The hard left’s solution, which is to rewrite the 1993 constitution and give the state a larger role in the economy, would make things worse. …Peruvians are frustrated. They have been told that by voting they can secure an honest government. But elected officials repeatedly turn out to be self-interested and corrupt. …Yet as fast as they throw the bums out and bring in new ones, more scandals arise. At the core of this dysfunction is a state with vast powers to redistribute wealth. …Even voters who say they want less corruption may find that change conflicts with their self-interest. The siren song of populism draws them to politicians who can hand out plenty of government jobs and other goodies in a world of weak institutional checks.

Amen.

I made the same point, for instance, in this 2009 video from the Center for Freedom and Prosperity. And I was focusing on the United States.

Simply stated, when politicians have more power over the allocation of a nation’s resources, the greater their incentive to abuse that power.

To be sure, it’s not a linear relationship.

A country’s political culture also matters. Some nation’s have developed very low levels of tolerance for corruption, so there’s not a strong relationship between corruption and the size of government.

As you can see from Transparency International’s Corruption Perceptions Index, the Nordic nations are among the countries that are especially good in this regard.

But nation’s from the developing world, including the perennial bottom-dweller Venezuela, tend to get poor scores.

The moral of the story is that it’s especially important to limit government (and therefore limit opportunities for corruption) in countries that don’t have high scores.

I’m including this data because Peru, unfortunately, is in the bottom half of nations.

Not a terrible score when compared to Venezuela, but weak compared to Chile.

That being said, I want to close with a dose of optimism about Peru.

Today’s final visual is a chart showing how economic freedom in the country dramatically increased starting in the mid-1980s when the “Washington Consensus” was ascendant. And, just as Prof. William Easterly found in his research, this eventually kick-started much better economic performance.

P.S. It is worrisome that Peruvian economic policy stopped improving beginning about 2005. And based on Ms. O’Grady’s column, it seems unlikely that policy will get better in the near future.

P.P.S. Chile remains (at least for now) the big economic success story of Latin America, though Panama deserves a bit of attention as well.

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Public finance experts sometime differ in how to describe a value-added tax.

  • Is it a hidden form of a national sales tax, imposed at each stage of the production process?
  • Is it a hidden withholding tax on income, imposed at each stage of the production process?

Both answers are actually correct. The VAT is both a tax on consumption and a tax on income because – notwithstanding its other flaws – it has the right “tax base.”

In other words, like the flat tax, a VAT taxes all economic activity, but only one time (i.e., no double taxation of income that is saved and invested). And it usually has a single rate, which is another feature of a flat tax.

That’s why a VAT (in theory!) would be acceptable if it was used to finance the complete abolition of the income tax.

But that’s not a realistic option. Heck, it’s not even an unrealistic option.

Instead, many politicians in the United States want to keep the income tax and also impose a VAT so they can finance a bigger burden of government – which is exactly what’s been happening in Europe.

Unfortunately, they’re getting some support from the American Enterprise Institute. Alan Viard, a resident scholar at AEI, has a new column urging the adoption of a VAT.

Let’s review what he wrote and explain why he’s wrong.

The U.S. faces a large long-term imbalance between projected federal tax revenue and federal spending… To narrow the fiscal imbalance, we should follow the lead of 160 other countries by adopting a value-added tax (VAT), a consumption tax that is economically similar to a retail sales tax. …Adopting a VAT would significantly curb the debt buildup.

I’ve never been impressed with the argument that the U.S. should adopt a policy simply because other nations have done the same thing.

The United States is much richer than other countries in large part because we haven’t replicated their mistakes. So why start now?

But let’s deal with Viard’s assertion that a VAT would “significantly curb the debt buildup.”

I recently showed the opposite happened in Japan. They adopted a VAT (and have repeatedly increased the VAT rate), but debt has increased.

But I think the strongest evidence is from Europe since we have several additional decades of data. Those nations started imposing VATs in the late 1960s and they now all have very high VAT rates.

And what’s happened to debt?

Well, as you can see from the chart, big increases in the tax burden were matched by even bigger increases in government debt.

The moral of the story is that Milton Friedman was right when he warned that, “History shows that over a long period of time government will spend whatever the tax system raises plus as much more as it can get away with.”

So why would Viard support a VAT when the evidence overwhelmingly shows that a big tax increase will worse a nation’s fiscal outlook?

He argues that a VAT would be the least-worst way to finance bigger government.

Although tax increases on the affluent place the burden on those with the most ability to pay, they impede long-run economic growth by penalizing saving and investment and distorting business decisions. The economic costs become larger as tax rates are pushed higher. …The VAT is more growth-friendly than high-income tax increases because it does not penalize saving and investment and poses fewer economic distortions.

He’s right that a VAT doesn’t do as much damage as class-warfare tax, but he’s wildly wrong to assert that it is “growth-friendly.”

Simply stated, a VAT will drive a further wedge between pre-tax income and post-tax consumption. That not only will discourage work. It also will discourage saving and investment.

The only positive thing to say is that a VAT doesn’t discourage those good things as much as some other types of tax increases.

But that’s sort of like saying that it’s better to lose your hand in an accident instead of losing your entire arm. Call me crazy, but I think the best outcome is to avoid the accident in the first place.

In other words, the bottom line is that we shouldn’t have any tax increase. Especially since 100 percent of America’s fiscal problem is the consequence of excessive government spending.

I’ll close by debunking the notion that a VAT is a simple tax.

As you can see from this European map, VATs can impose huge complexity burdens on businesses.

Yes, the map shows that some nations have relatively simple VATs, but American politicians already have shown with the income tax that they can’t resist turning a tax system into a Byzantine nightmare. Of course they would do the same with the VAT, creating special loopholes and penalties to please their donors.

P.S. Here’s my video from 2009, which explains how a VAT works and why it would be a bad idea.

Everything I said back then is even more true today.

P.P.S. The clinching argument is that one of America’s best presidents opposed a VAT and one of America’s worst presidents supported a VAT. That tells you everything you need to know.

P.P.P.S. You can enjoy some amusing – but also painfully accurate – cartoons about the VAT by clicking here, here, and here.

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Most Republicans and Democrats have a self-interested view of divided government.

They obviously prefer if their party controls everything. After all, that’s how Republicans got tax reform in 2017 and it’s how Democrats got Obamacare in 2010.

But they also like gridlock if that’s the only way of stopping the other party from wielding all the power.

Which is why Democrats liked gridlock after the 2018 election (they won the House of Representatives) and Republicans are going to like gridlock after the 2020 election (assuming they hold the Senate).

But what about those of us who want more economic liberty? Is gridlock good or bad?

As a matter of political economy, gridlock is good because it is harder for politicians to do anything when there’s divided government. Indeed, America’s Founders created a “separation of powers” system precisely because they wanted “checks and balances” to limit the power of politicians.

That’s the theory.

So how has it worked in practice?

First, we can look at international evidence by comparing the United States and Europe. We know two things.

  • European nations have a larger burden of government spending than the United States and generally have lower levels of economic liberty when compared to America.
  • European nations have parliamentary systems of government (the party that controls the legislature, by definition, controls the entire government), which means no checks and balances that can produce gridlock.

It’s certainly possible – or even quite likely – that those two points are interconnected. In other words, government has expanded faster in Europe precisely because there was no effective way of slowing or blocking statist legislation (and, as we know from the Second Theorem of Government, it’s difficult to take away goodies once voters get used to dependency).

Second, we can look at domestic evidence by comparing what’s happened in recent decades when there’s been gridlock in Washington.

Professor Steve Hanke crunched the numbers a couple of years ago. Here’s the chart he prepared showing that we got the most spending restraint (shaded in green) when there was divided government.

Steve’s data is persuasive, but I think it’s even more instructive to focus on the next column, which shows changes in non-defense spending.

By this measure, the only good results (i.e., a falling burden of spending) occurred during the Reagan and Clinton years. Since I did a video on exactly this issue, I concur that we got good results during their presidencies.

But notice that we now see very bad numbers when there was divided government during the Eisenhower and Nixon years. And the numbers for the first President Bush moved further in the wrong direction.

The bottom line is that divided government can be good, but it may actually produce the worst-possible results when you combine weak-on-spending Republican presidents with profligate Democratic Congresses.

P.S. There’s strong evidence that gridock following the 2010 election produced better results for the nation.

P.P.S. Here’s my more advanced breakdown of what happened to government spending for every president since LBJ.

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The day after the election, I wrote that “left-wing goals are now very unlikely” because Republicans almost certainly will retain control of the Senate.

But perhaps I should have been ever bolder and argued that the election was a rejection of the left-wing agenda.

An editorial from the Wall Street Journal points out that voters did not vote for bigger government or more statism.

…the closer we inspect the nationwide election returns, the more the result looks like a defeat…for the progressive agenda. …Democrats lost seats in the House, giving up some of the suburban gains they made in 2018 while continuing to struggle in rural areas. …A GOP Senate may compromise with Mr. Biden around centrist ideas, but the aggressive House agenda of the last two years would die again. This result is all the more remarkable given that Democrats had nearly all of the media, Silicon Valley billionaires, and all of the leading cultural figures and institutions helping them. …The lack of coattails was also evident in the states, where Democrats spent heavily to flip legislatures. …The GOP flipped both legislative bodies in New Hampshire, despite Mr. Trump’s loss in the Granite State, and Republicans protected their advantage nearly everywhere else. …There was no blue wave, and certainly no mandate for progressive change. …in their considerable wisdom, the voters may have elected Mr. Biden but they left his party and its radical ideas behind.

Some readers may think that the Wall Street Journal‘s editors are engaging in spin. In other words, because of their pro-market views, they’re trying to make it seem like a defeat wasn’t really a defeat.

But what about Helaine Olen, a reliably left-wing columnist for the Washington Post, who reached the same conclusion when opining about election results from California.

Proposition 22 — which would allow gig-economy companies such as Uber, Lyft and DoorDash to continue treating drivers as independent contractors — passed handily. On the other hand, Proposition 16, which would have restored affirmative action to California’s public college and university admissions, has gone down in defeat. …Let’s take Proposition 22. Activists have been unhappy with the tech giants of the sharing economy for years, pointing out repeatedly that they are using venture capital to subsidize an unprofitable industry and that, moreover, they offer almost nothing in either the way of labor or consumer protection. The entire business model is designed to get around government regulations. …Voters did not appear particularly concerned that allowing a major employer to override state regulation and effectively set its own working conditions is a terrible precedent — not when a few extra dollars per ride was at stake. When it came down to worker welfare vs. short-term convenience and financial gain, it wasn’t even a contest. …Proposition 16…supporters roundly outspent opponents and hoped the increased attention to issues of systemic racial inequities in the wake of the killing of George Floyd would help them garner support. …The biggest obstacle might have been the traditional antipathy toward affirmative action reasserting itself — a survey last year found that 3 out of 4 Americans opposed using race or ethnicity as a factor in college admissions.

And the New York Times isn’t exactly a bastion of right-wing thinking, yet an article by Thomas Fuller, Shawn Hubler, Tim Arango and also acknowledges that the election results were not great for the left.

…the nation’s most populous state put up mammoth numbers for the Democrats. But dig a little deeper into the results and a more complex picture of the Golden State voter emerges, of strong libertarian impulses and resistance to some quintessentially liberal ideas. In a series of referendums, voters in California rejected affirmative action, decisively shot down an expansion of rent control and eviscerated a law that gives greater labor protections for ride-share and delivery drivers, a measure that had the strong backing of labor unions. A measure that would have raised taxes on commercial landlords to raise billions for a state that sorely needs revenue also seemed on track for defeat. …said Bob Shrum, a former Democratic strategist…“California is a very liberal state that is now resistant to higher taxes.” …For all their liberal leanings on issues like the environment, California voters have long been less welcoming to new taxes… Proposition 15, would have removed the Proposition 13 tax limits on commercial properties like office buildings and industrial parks, continuing to shield homeowners while raising an estimated $6.5 billion to $11.5 billion a year for public schools and local governments. The measure was trailing on Thursday.. More than $100 million was also spent on another hot-button measure, rent control. Polls showed that the housing crisis was the No. 1 concern for state voters… And yet voters up and down the state resoundingly rejected efforts to expand tenants’ rights and rent control. …What do voters think about voting for Democrats and at the same time not supporting Democratic-led initiatives? José Legaspi, a Los Angeles resident…voted for Mr. Biden and did not think twice about opposing the measure that would raise taxes on commercial properties. “I truly believe in paying taxes,” he said. “However there is a point at which one should limit how much more in taxes one should personally pay.”

The bottom line is that Joe Biden won the White House (barring some dramatic and unexpected developments), but not because of his statist agenda.

It’s more accurate to say that voters wanted to end the sturm and drang of Trump, but without embracing bigger government.

P.S. I’m not going to pretend that voters are rabid libertarians who are clamoring for my preferred policies (such as shutting down departments, genuine entitlement reform, etc). But I also think that it’s safe to say that they don’t want the left’s agenda (class warfare, Medicare for all, green new deal, etc) of bigger government and more dependency.

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Earlier this month, I reviewed some evidence and analysis about the corruption in Washington.

Today, let’s look at some tangible examples of how the political elite routinely exploit their positions to enrich themselves by pillaging taxpayers.

We could start with the obvious example of Hunter Biden, but he’s just the tip of the iceberg. I noted way back in January that several members of Joe Biden’s family have cashed in on their connection to the former Vice President.

It goes without saying that lobbyists and other special interests are funneling money to the Biden family because they expect that they’ll be rewarded with lucrative contracts and other goodies from the government. Heck, the Biden family is basically cutting out the middleman in this picture.

But this isn’t a partisan issue. Plenty of Republicans also play the same game.

A column by Larry Getlen in the New York Post describes how this racket works.

Rather than risk their careers taking bribes for potentially minuscule rewards, …today’s politicians are savvier, engaging in what he calls “corruption by proxy.” While politicians and their spouses are often subject to rigid regulations on what gifts they can accept and what sort of business they can conduct, others around them — like their friends or children have no such obstacles. So while a politician could theoretically wind up in prison for accepting $10,000 for doling out favors, establishing overseas connections that could land your children multi-million-dollar deals is harder to detect, and often legal. …This ethical looseness is endemic throughout the federal government. …it has spread like a virus through Congress, where the lines between members, their families, and lobbying groups have become indistinguishable.

Senator Mitch McConnell gets some unfavorable attention in the column, along with many other lawmakers from both parties.

And if you want even more examples, you can easily search the Internet if you want to learn about the unsavory actions of other senior officials – including Nancy Pelosi and Diane Feinstein.

The inescapable takeaway is that we have an unholy trinity of politicians, big government, and corruption.

And it’s totally bipartisan.

For instance, the Atlantic put together a very harsh assessment of the Trump Cabinet back in 2018.

Shulkin and Carson face the same problem: dubious use of taxpayer dollars in their duties as secretaries. They can console themselves knowing that they’re in good company. Interior Secretary Ryan Zinke, EPA Administrator Scott Pruitt, Treasury Secretary Steven Mnuchin have been caught in extravagant expenditures, too. Less heartening is the sixth example, Tom Price, who was unceremoniously forced out as secretary of health and human services in September 2017. There are so many cases of huge spending of taxpayer dollars by Cabinet secretaries that it’s easy to lose track of them all—or simply to become desensitized.

The list is damning (and is costing taxpayers a lot of money).

…a trip to Europe during summer of 2017. The government paid not only for Shulkin, but also for his wife, a security detail, and other staffers. Almost half of the trip was devoted to tourism, visiting castles and then the Wimbledon tennis tournament, to which the Shulkins improperly accepted tickets. …Carson’s big problem is a $31,000 dining-table set purchased for his office, which far exceeded regulations on spending for decoration. …Price was forced to resign after spending more than $1 million on travel on private and military jets. That’s the largest single figure to emerge, but only by a hair, while the type of behavior has occurred repeatedly. Documents obtained by the left-leaning watchdog group CREW suggest Mnuchin racked up nearly $1 million in his own travel, including a notorious trip to watch the eclipse at Fort Knox in Kentucky, publicized by his wife Louise Linton’s Instagram feud about it. …Interior Secretary Ryan Zinke, who took a security detail along when he went on a non-work-related two-week vacation in Greece and Turkey last year. …For still-opaque reasons, the Interior Department paid $139,000 for a door for Zinke’s office… Scott Pruitt, the EPA chief, who has spent more than $100,000 on first-class tickets, an expenditure he attributed to the need for security.

But even more damning is this sentence.

Because fiscal conservatism isn’t an organizing principle for the Trump presidency, it’s easier for Cabinet secretaries to justify big spending.

In other words, taxpayers are getting screwed because Trump has been profligate (even more of a big spender than Obama!).

And let’s not forget that the corruption is so bad that some Trump insiders have wound up in legal trouble.

But remember, this is a problem with both political parties, and it’s a near-inevitable consequence of having a bloated federal government that is collecting and redistributing trillions of dollars (and also wielding enormous regulatory power, which also can be improperly used to reward friends and punish enemies).

Let’s close by adding to our collection of politician humor. After all, if they keep ripping us off, we at least deserve a few laughs.

P.S. The silver lining to all the bad news discussed above is that the American people are aware there is a problem. According to Chapman University’s Survey of American Fears, “For the fifth year in a row the top fear of Americans is corrupt government officials. And as in the previous five years, the fear that our government is corrupt far exceeds all others we asked about. More than 3/4 of Americans said they are afraid or very afraid of corrupt governmental officials in 2019.”

P.P.S. If there was a gold medal for insider corruption, the Clintons would own it (Obama and his people were sleazy, but amateurs by comparison).

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Bernie Sanders was considered a hard-core leftist because his platform was based on higher taxes and higher spending.

Elizabeth Warren also was considered a hard-core leftist because she advocated a similar agenda of higher taxes and higher spending.

And Joe Biden, even though he is considered to be a moderate, is currently running on a platform of higher taxes and higher spending.

Want to know who else is climbing on the economically suicidal bandwagon of higher taxes and higher spending? You probably won’t be surprised to learn that the pro-tax International Monetary Fund just published its World Economic Outlook and parts of it read like the Democratic Party’s platform.

Here are some of the ways the IMF wants to expand the burden of government spending.

Investments in health, education, and high-return infrastructure projects that also help move the economy to lower carbon dependence… Moreover, safeguarding critical social spending can ensure that the most vulnerable are protected while also supporting near-term activity, given that the outlays will go to groups with a higher propensity to spend their disposable income… Some fiscal resources…should be redeployed to public investment—including in renewable energy, improving the efficiency of power transmission, and retrofitting buildings to reduce their carbon footprint. …social spending should be expanded to protect the most vulnerable where gaps exist in the safety net. In those cases, authorities could enhance paid family and sick leave, expand eligibility for unemployment insurance, and strengthen health care benefit coverage…social spending measures…strengthening social assistance (for example, conditional cash transfers, food stamps and in-kind nutrition, medical payments for low-income households), expanding social insurance (relaxing eligibility criteria for unemployment insurance…), and investments in retraining and reskilling programs.

And here’s a partial list of the various class-warfare taxes that the IMF is promoting.

Although adopting new revenue measures during the crisis will be difficult, governments may need to consider raising progressive taxes on more affluent individuals and those relatively less affected by the crisis (including increasing tax rates on higher income brackets, high-end property, capital gains, and wealth) as well as changes to corporate taxation that ensure firms pay taxes commensurate with profitability. …Efforts to expand the tax base can include reducing corporate tax breaks, applying tighter caps on personal income tax deductions, instituting value-added taxes.

Oh, by the way, if nations have any rules that protect the interests of taxpayers, the IMF wants “temporary” suspensions.

Where fiscal rules may constrain action, their temporary suspension would be warranted

Needless to say, any time politicians have a chance to expand their power, temporary becomes permanent.

When I discuss IMF malfeasance in my speeches, I’m frequently asked why the bureaucrats propose policies that don’t work – especially when the organization’s supposed purpose is to promote growth and stability.

The answer is “public choice.” Top IMF officials are selected by politicians and are given very generous salaries, and they know that the best way to stay on the gravy train is to support policies that will please those politicians.

And because their lavish salaries are tax free, they have an extra incentive to curry favor with politicians.

P.S. I wish there was a reporter smart enough and brave enough to ask the head of the IMF to identify a single nation – at any point in history – that became rich by expanding the size and cost of government.

P.P.S. There are plenty of good economists who work for the IMF and they often write papers pointing out the economic benefits of lower taxes and smaller government (and spending caps as well!). But the senior people at the bureaucracy (the ones selected by politicians) make all the important decisions.

 

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Earlier this year, I asked “Why are there so many bad and corrupt people in government?” and suggested two possible explanations.

  1. Shallow, insecure, and power-hungry people are drawn to politics because they want to control the lives of others.
  2. Good people run for political office, but then slowly but surely get corrupted because of “public choice” incentives.

I’m sure both answers apply to some extent. But let’s consider whether one answer is more accurate in more cases?

In an article for Quillette, Professor Crispin Sartwell of Dickinson College looks at this chicken-or-egg issue of whether people are corrupted by government or corrupt people gravitate to government.

“Power corrupts,” as the saying goes, and a corollary is that, other things being equal, the more power, the more corruption. …But perhaps the explanation runs the other way: It’s not only or not even primarily that power corrupts, but that corrupt people seek power, and the most effectively corrupt are likeliest to succeed in their quest. …That is, it is likely that a political career would attract moral corner-cutters. …There may be a certain percentage of people who seek power because they want to do good, or it may be that in the back of their minds, every political leader believes that he intends to do good. But to use power to do good, you’ll have to do whatever’s necessary to get that power. You’ll likely have to compromise whatever basic moral principles (“tell the truth,” for example) you came in with. …political power is a constant temptation to hypocrisy, or just flatly demands it. And when the public persona and the private reality come apart, a human being becomes a moral disaster, a mere deception. That is a fate common among politicians.

Professor Sartwell may not have a firm answer, but one obvious conclusion is that good people will be scarce in Washington.

And it’s not just the politicians we should worry about. The whole town seems to attract dodgy people.

In a 2018 study, Professor Ryan Murphy of Southern Methodist University found that Washington has far more psychopaths than any other part of the country.

Psychopathy, one of the “dark triad” of personality characteristics predicting antisocial behavior, is an important finding in psychology relevant for all social sciences. …While a very small percentage of individuals in any given state may actually be true psychopaths, the level of psychopathy present, on average, within an aggregate population (i.e., not simply the low percentages of psychopaths) is a distinct research question. …The most extreme data point is the District of Columbia, which received a standardized score of 3.48. …The presence of psychopaths in District of Columbia is consistent with the conjecture found in Murphy (2016) that psychopaths are likely to be effective in the political sphere. …The District of Columbia is measured to be far more psychopathic than any individual state in the country, a fact that can be readily explained…by the type of person who may be drawn a literal seat of power.

Moreover, we know that the crowd in D.C. figuratively screws taxpayers, but it appears they’re also busy screwing in other ways.

Residents in Washington, D.C. have the highest rates of sexually transmitted disease, compared to 50 states, according to a recent Center for Disease Control and Prevention report. Out of the four kinds of STDs that the CDC report identified – chlamydia, gonorrhea, primary and secondary syphilis and congenital syphilis – the district scored No.1 in the first three by a large margin… For every 100,000 D.C. residents, 1,083 cases of chlamydia were reported. Alaska came in second with only 772 cases. Similarly, the district had 480 cases of gonorrhea per 100,000 population, double the rate of Mississippi, which ranked second.

Since this report was based on data in 2016, it’s possible another state has overtaken D.C.

But given Washington’s big lead, that would take a lot of risky extracurricular activity.

This tweet caught my eye because it nicely captures how the “experienced” people in Washington often may be the worst of the worst.

And we’ll close with this quote, which comes down on the side of bad people naturally gravitating to government.

P.S. If you like mocking the political class, you can read about how the buffoons in DC spend their time screwing us and wasting our money. We also have some examples of what people in MontanaLouisianaNevada, and Wyoming think about big-spending politicians. This little girl has a succinct message for our political masters, here are a couple of good images capturing the relationship between politicians and taxpayers, and here is a somewhat off-color Little Johnny joke. Speaking of risqué humor, here’s a portrayal of a politician and lobbyist interacting. Returning to G-rated material, you can read about the blind rabbit who finds a politician. And everyone enjoys political satire, as can be found in these excerpts from the always popular Dave Barry. Let’s not forgot to include this joke by doctors about the crowd in Washington. And last but not least, here’s the motivational motto of the average politician.

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